O’LEVEL HANDOUTS

INCOMPLETE RECORDS

In this chapter, you will learn about handling problems of incomplete records. You will how to implement
different accounting tools and equation to identify the profit of a period, when only opening and closing
figures and drawings are known. You will learn how to find the figures for cash drawings or the figures
for cash expenses when all other cash receipts and payments are known. You will be able to identify the
total sales and purchase from incomplete records.
(Frank Wood, Business Accounting)

Why to learn ‘Incomplete Records’ ?

Many small businesses like coffee shop, internet café and others do no maintain double entry systems. This
is because they are not even familiar with this concept of accounting. At best these businesses maintain a
cashier copy, and keep track of daily basis sales revenue. However, they must do have to prepare financial
statement and need to track down the actual profit. Now think of how this could be calculated in the
bookkeeping records are inadequate or incomplete? Single entry is going be a solution to such problems.

Then, what do you need to learn to find solution from ‘Incomplete Records’ ?
 Finding sales figures using debtor’s account

 Finding purchase figures using creditor’s account.

 Finding actual expense or income incurred using different adjustments.

 Finding yearend cash/bank balance using data from total receipts and payments.

 Finding business capital using equation.

 Finding profit or loss using tools from profitability and liquidity ratios.

 Complete the financial statement using all the findings mentioned above.

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O’LEVEL HANDOUTS

 FINDING SALES FIGURES:

This may include both cash and credit sales for the given period, Cash sales figures are normally
given on the debit side of cash book. To obtain credit sales figures you need to prepare a debtors
account using amount received from debtors from cash book and other related adjustments. In
many cases you may need to considered amount withdrawn out of the cash taking for obtaining
the total sales figures.

DEBTORS ACCOUNT
£ £
Balance b/d xxx
Credit Sales xxx Bank xxx
Discount allowed xxx
Bad Debts xxx
Return inward/ Sales return xxx
Contra: Purchase Ledger xxx
Balance c/d xxx
xxx xxx
Balance b/d xxx

Total Sales = Credit Sales + Cash Sales

The following examples will help you to understand how any drawings out of the cash takings are used
to obtain total sales figures.

Mr. X deposited £200 of cash taking except £50 which

BANK
X he spent for his own personal use.

WHAT IS THE TOTAL SALES FIGURES

£200 + £50 = £250 ?
Therefore: Total Sales = Credit Sales + Cash Sales + Withdrawn items from Sales

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O’LEVEL HANDOUTS

 FINDING PURCHASE FIGURES:

This may include both cash and credit purchase for the given period, Cash purchase figures are
normally given on the credit side of cash book. To obtain credit purchase figures you need to
prepare a creditors account using amount paid to supplier from cash book and other related
adjustments.

CREDITORS ACCOUNT
£ ` £
Balance b/d xxx
Bank xxx Credit Purchase xxx
Discount received xxx
Return outwards xxx
Contra: Sales Ledger xxx
Balance c/d xxx
xxx
Balance b/d xxx

Total Purchase = Credit Purchase + Cash Purchase

Worked Example for your understanding how does this work to obtain total purchase for given period:

Creditors Account
GIVEN:  Opening creditors £5000
£ £
 Cash purchase £12300 Balance b/d  5000
Bank  35600 Credit Purchase  35200
 Payment to supplier £35600
Disc received  400
 Discount received £400 Return out  800
Balance c/d  3400
 Purchases return £800 40200 40200

 Closing creditors £3400 Balance b/d 3400

 
TOTAL PURCHASE = £35200 + £12300 = £47500

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O’LEVEL HANDOUTS

 OBTAINING ACTUAL EXPENSES AND INCOMES INCURRED:

In according to accrual concepts any expenses, income or revenue must be recognized within the
financial period, doesn’t matter how much is paid or not yet paid. As a result the amount
mention in cash book must be adjusted with prepaid and outstanding bill to determine how
much to transfer to profit & loss account. It is wise if you prepare the expenses and income
account to adjust the actual expenses or incomes incurred.

EXPENSES ACCOUNT
£ ` £
Balance b/d (advance) xxx Balance b/d (owing) xxx
Bank xxx Profit & Loss  xxx
Balance c/d (owing)  xxx Balance c/d (advance)  xxx
xxx xxx

INCOME ACCOUNT
£ £
Balance b/d (owing) xxx Balance b/d (advance) xxx
Profit & Loss  xxx Bank xxx
Balance c/d (advance)  xxx Balance c/d (owing)  xxx
xxx xxx

Profit & Loss extraction: Balance Sheet extraction:

£ £ £ £
Gross Profit xxx Fixed Assets: xxx

(+) Income  xxx Current Assets:

Expense Prepaid  xxx
(-) Expenses  (xxx) Income Owing  xxx

Current Liabilities:
Expenses Owing  xxx
Income Prepaid  xxx

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O’LEVEL HANDOUTS

 OBTAINING CASH/BANK BALANCE:

Cash book plays a very important role in solving incomplete records. Most the business who do
not keep proper records, at least maintain a receipts and payments account, where you can find
how much cash is paid and how much is received from different source of incomes. Many time
candidates may require to find the closing cash balance to determine current assets or overdraft
as current liabilities.

CASH BOOK
£ £
Balance b/d 1 xxx Balance b/d xxx
Sales 2 xxx Purchase 7 xxx
Debtors 3 xxx Creditors 8 xxx
Loan 4 xxx Expense 9 xxx
Capital 5 xxx Fixed Assets 10 xxx
Other incomes 6 Drawings 11 xxx
Loan interest 12 xxx
Repayment of loan 13 xxx

Balance b/d 15 xxx Balance c/d 14 xxx

xxx
Balance b/d xxx Balance b/d xxx

Explanation for each of the entries in Cash Book:

Opening Balance at the beginning of financial period represent how much balance is carried
1
forward from previous financial period.
2 Cash received on sales of goods.
3 Cash received from credit customers (debtors).
4 Loan from banks or others, usually treated as long term liabilities.
5 Introduction of additional capital as bank or cash, to expand business investment.
6 Cash received as income from other sources such as rent receivable.
7 Cash paid on purchase of goods.
8 Cash paid to settle the balance against credit customers (creditors).
9 Cash paid for different expenditure, usually this are treated as operating expenses for the business.
10 Cash paid for acquisition of fixed assets.
11 Cash withdrawn by owners for personal purpose.
12 Payment of loan interest arising from long term liabilities.
13 Repayment of loan to bank or other lenders.
Closing debit balance indicating the balance in hand and is treated as current assets in balance
14
sheet.
Closing credit balance indicating overdraft for the business and is treated as current liabilities in
15
balance sheet

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O’LEVEL HANDOUTS

 CALCULATION OF CAPITAL:
This is a very important part, every student need a greater knowledge. Capital can be calculated
using different equation. For your knowledge all what you need to visualize the balance sheet.
For many businesses capital is not properly mentioned as a result using assets, liabilities, net
profit, net loss and drawings you can easily obtain how much capital is available at beginning and
end of every financial year.

Capital = Fixed Assets + Current Assets – Current Liabilities

Capital = Fixed Assets + Working Capital

Capital = Opening Capital + New Capital + Net Profit/ (-) Net Loss – Drawings + Loan

Capital = Business Equity + Loan

CAPITAL ACCOUNT
£ £
Balance b/d xxx
Drawings xxx New Capital xxx
Net Loss xxx Net Profit xxx

Balance c/d xxx

xxx xxx
Balance b/d xxx

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