INCOMPLETE RECORDS

INCOMPLETE RECORDS
• For many small businesses, they do not maintain a full set
of double-entry books.
• Incomplete records are, as they suggest, accounting records
that are incomplete.
• Much of their business done on cash basis
• All they keep are just invoices and bank statement/cash
book.
• The preparation of the income statement and statement of
financial statement in circumstances where the
bookkeeping records are inadequate or incomplete.
REASON FOR INCOMPLETE
RECORD
• Lack of accounting experience to maintain records.
• Cash misappropriated by the assistant.
• Goods stolen or lost by fire.
• The lack of information could be due to loss of information, for
example as a result of a fire or flood where the records are kept
or having simply just not been kept by the business proprietor
perhaps through a lack of book keeping knowledge.
PREPARATION OF FINANCIAL
STATEMENTS
• Step 1 :Prepare Opening Statement of Affairs
• Step 2 : Compile Cash and Bank Transactions
• Step 3: Prepare Adjustment Accounts
• Step 4: Preparation of Financial Statements
STATEMENT OF AFFAIRS

A statement of affairs is used to determine a

business’s capital if the total of assets and liabilities is
known. It lists assets and liabilities in a format similar
to a balance sheet.
Mark Hardy, a sole trader has provided the following information for his
business.
01/01/06 01/01/07
£ £
Motor vehicle 30,000 25,000
Stock 18,000 16,000
Trade receivables 6,000 8,000
Bank 2,500 4,300
Trade payables 5,000 6,200

During the year Mark withdrew £12,000 for personal use.

No new capital was introduced.
Prepare a statement of affairs as at 1 January 2006 to calculate the
opening capital.
Prepare a statement of affairs as at 1 January 2007 to calculate the
closing capital.
Calculate profit using the formula
Profit = closing capital – opening capital – capital
introduced + drawings
Statement of affairs for Mark Hardy
as at 1 January 2006
£ £
Non Current Assets
Motor vehicles 30,000
Current assets
Inventory 18,000
Trade Receivables 6,000
Bank 2,500
26,500
Current liabilities
Trade Payables 5,000
Net current Assets 21,500
51,500

Capital 51,500
Statement of affairs for Mark Hardy
as at 1 January 2007
£ £
Non Current assets
Motor vehicles 25,000
Current assets
Inventory 16,000
Trade Receivable 8,000
Bank 4,300
28,300
Current liabilities
Trade Payables 6,200
Net Current Assets 22,100
47,100

Capital 47,100

Profit = closing capital – opening capital – capital introduced + drawings

Profit = 47,100 - 51,500 + 12,000 = 7,600

STATEMENT OF AFFAIRS
Inadequate record-
keeping
Inadequate record-keeping can cause
problems. The business may not be
able to access up-to-date information
about:
Trade Receivables
Trade Payables
Sales
Purchases
Expenses
Etc
CALCULATION OF SALES AND
PURCHASES USING CONTROL ACCOUNTS

In order to produce a set of accounts for a

business, the total sales and purchases must
be known.
A business can often provide details of cash
sales and purchases.
In order to find the total credit sales and
credit purchases, control accounts can be
used.
Elizabeth Berry provided the following
information:
At the beginning of the financial year debtors
were £5,610.
During the year receipts from debtors amounted
to £69,630.
At the end of the year debtors owed her £7,710.
We can find the total credit sales by
constructing a control account.
Dr Sales ledger control account Cr

£ £

Balance b/d 5,610 Bank 69,630

Balance c/d 7,710

If we balance the account we can calculate the

missing figure for credit sales.
Dr Sales ledger control account Cr

£ £

Balance b/d 5,610 Bank 69,630

Credit sales 71,730 Balance c/d 7,710
77,340 77,340
It is also possible to calculate credit sales
without constructing a control account.

Credit sales for the year =

debtors at the end of year +

receipts from debtors –

debtors at the beginning of the year

CALCULATING CREDIT
PURCHASES

Maz owed £1,910 to suppliers at the

beginning of the year, £2,430 at the end of
the year, and during the year he had paid
£28,520 to suppliers.

Calculate the credit purchases for the year.

Dr Purchase ledger control account Cr

£ £

Bank 28,520 Balance b/d 1,910

Balance c/d 2,430

If we balance the account we can calculate the missing

credit purchases figure for the period.
Dr Purchase ledger control account Cr

£ £

Bank 28,520 Balance b/d 1,910

Balance c/d 2,430 Credit
purchases 29,040
30,950 30,950
It is possible to calculate without drawing up a
control account.

Credit purchases for the year =

creditors at the end of year +

total paid to creditors –

creditors at the beginning of the

year
ACCOUNTING RATIOS

It is sometimes possible to use accounting ratios to

calculate missing figures. Three common ratios are:
Margin

Mark-up

Stockturn
CALCULATION OF MARGIN

Profit margin: This can be expressed as the ratio of

gross profit to selling price. It is expressed in percentage
terms.

Margin = Gross profit x 100

Sales
CALCULATION OF MARK-
UP

Mark–up: This is the amount by which the cost of a

good has been increased to arrive at the selling price.

Mark-up = Gross profit x 100

Cost of goods sold

CALCULATION OF
STOCKTURN

Stockturn: This is the number of times on

average the stock changes throughout the year.

Stockturn = Cost of goods sold

Average stock

Average stock = Opening stock + Closing stock

2
MARGIN AND MARKUP
• The difference between margin and markup is that margin
is sales minus the cost of goods sold,
• While markup is the amount by which the cost of a
product is increased in order to derive the selling price.
• A mistake in the use of these terms can lead to price setting
that is substantially too high or low, resulting in lost sales
or lost profits, respectively.
MARGIN AND MARKUP
• Margin (also known as gross margin) is sales minus the cost of
goods sold. For example, if a product sells for $100 and costs
$70 to manufacture, its margin is $30. Or, stated as a
percentage, the margin percentage is 30% (calculated as the
margin divided by sales).
• Markup is the amount by which the cost of a product is
increased in order to derive the selling price. To use the
preceding example, a markup of $30 from the $70 cost yields
the $100 price. Or, stated as a percentage, the markup
percentage is 42.9% (calculated as the markup amount divided
by the product cost).
MARGIN AND MARKUP
• It is easy to see where a person could get into trouble deriving prices if
there is confusion about the meaning of margins and markups.
• Essentially, if you want to derive a certain margin, you have to markup
a product cost by a percentage greater than the amount of the margin,
since the basis for the markup calculation is cost, rather than revenue;
since the cost figure should be lower than the revenue figure, the markup
percentage must be higher than the margin percentage.
• The markup calculation is more likely to result in pricing changes over
time than a margin-based price, because the cost upon which the markup
figure is based may vary over time; or its calculation may vary, resulting
in different costs which therefore lead to different prices.
MARGIN AND MARKUP
•The following bullet points note the differences between the margin and markup percentages at
discrete intervals:
•To arrive at a 10% margin, the markup percentage is 11.1%
•To arrive at a 20% margin, the markup percentage is 25.0%
•To arrive at a 30% margin, the markup percentage is 42.9%
•To arrive at a 40% margin, the markup percentage is 80.0%
•To arrive at a 50% margin, the markup percentage is 100.0%
•To derive other markup percentages, the calculation is:
•Desired margin / Cost of goods
•For example, if you know that the cost of a product is $7 and you want to earn a margin of $5 on
it, the calculation of the markup percentage is:
•$5 Margin / $7 Cost = 71.4%
•If we multiply the $7 cost by 1.714, we arrive at a price of $12. The difference between the $12
price and the $7 cost is the desired margin of $5.
MARGIN AND MARKUP

If Margin is a/b then mark up is a/b-a

So if Margin is 1/5 then markup is ¼

Vice Versa
If Markup is a/b then margin is a/b+a
So if Markup is 1/6 then margin is 1/7
Example:
calculating
purchases using
ratios
The following information is available for
Diane Davis:

Opening stock = £5,200

Gross margin = 30%
Closing stock = £5,600
Sales = £160,000
We can now calculate the gross profit using the
formula:

Gross profit = sales × 30%

Gross profit = 160,000 × 30%

Gross profit = £48,000

We can draw up a trading account.

 CREDIT SALES
Credit Sales  to be found in Total Debtors
Account
 to use accounting ratio

BACK
 WORKING 2:
Purchases = Cash Purchases + Credit Purchases

NEXT
 CASH/CREDIT PURCHASES
Cash Purchases  may be found in cash
book.
Credit Purchases  Total Creditors
Account
 to use accounting
ratio

BACK
 WORKING 3:
Gross Profit
• To use ratios such as mark-up and margin to find gross
profit figures
• Then use gross profit figures to find missing figures. (e.g.:
purchases, cost of good sold, closing stock, etc.)

NEXT
DIANE DAVIS TRADING ACCOUNT

£ £
Sales 160,000
Opening stock 5,200
Purchases

Closing stock 5,600

Cost of sales
Gross profit 48,000

We can now calculate the cost of sales and the purchases.

DIANE DAVIS TRADING
ACCOUNT

£ £
Sales 160,000
Opening stock 5,200
Purchases 112,400
117600
Closing stock 5,600
Cost of sales 112,00
Gross profit 48,000
Example:
calculating sales
using ratios
Vicky Taylor is a retailer who can supply the following
information relating to the past trading year:
Mark-up = 25%
Purchases = £27,000
Opening stock = £2,450
Closing stock = £2,650
Calculate the sales.
We can draw up a trading account.
Vicky Taylor trading account

£ £
Sales
Opening stock 2,450
Purchases 27,000
29,450
Closing stock 2,650
Cost of sales 26,800
Gross profit
We can now calculate the gross profit using
the formula:

Gross profit = cost of sales × 25%

Gross profit = 26,800 × 25%
Gross profit = £6,700

We can insert the missing figures in the

trading account.
 Vicky Taylor trading account

£ £
Sales 33,500
Opening stock 2,450
Purchases 27,000
29,450
Closing stock 2,650
Cost of sales 26,800
Gross profit 6,700
CALCULATING PURCHASES
AND SALES USING RATIOS

Simon Rock provided the following information regarding

his business:

Opening stock £10,000

Closing stock £14,000
Stockturn 8 times
Mark-up 25%

Calculate the purchases and sales.

Calculate the cost of sales using the
stockturn ratio:

Stockturn = Cost of sales

Average stock
or
Stockturn × Average stock = Cost of sales
8 × (10,000+14,000/2) 96,000

Cost of sales = 96,000

We can now draw up a trading account.
 Simon Rock trading account
£ £
Sales
Opening stock 10,000
Purchases

Closing stock 14,000

Cost of sales 96,000
Gross profit
We can now calculate the gross profit using the
mark-up formula:

Gross profit = 25% × 96,000

= 24,000

We can work out the sales and purchases, when

we put this figure in the trading account.
 Simon Rock trading account
£ £
Sales 120,000
Opening stock 10,000
Purchases 110,000
120,000
Closing stock 14,000
Cost of sales 96,000
Gross profit 24,000
 STOCK LOSS
• Stock loss (e.g. $1000) without insurance claim
• Dr. Profit and loss $1000
• Cr. Trading $1000
• Stock loss (e.g. $1000) with insurance claim (e.g. $800)
• Dr. Bank $800
• Dr Profit and loss $200 (net loss)
• Cr Trading $1000
Balance Sheet at 31 June 19-1 (extracts)
Stock $23750
Debtors $16000
Creditors $11520
During this period: $
Receipts from debtors 61000
Cash Sales 17220
Payment to creditors 59630
Payment to expenses 4000
At 30 June 19-2: Debtors $18780
Creditors $14210
The firm achieves a mark-up of 25% on all cost.
The warehouse has burned down and all the stock was
destroyed.
The insurance company gives $15000 for compensation for
stock loss.
 Trading and Profit for the year ended 30 June 19-2
$ $
Sales (17220+61000+18780-16000) 81000
Less: COGS
Opening stock 23750
Add: Purchase (59630+14210-11520) 62320
86070
Less: Fire loss (21270) 64800 [2]
[3]
Gross profit (81000 * 25/125) 16200 [1]
Less: Expenses
Expenses 4000
Fire loss (21270-15000) 6270 10270
Net Profit 5930
FINDING MISSING FIGURES
CASH STOLEN?
CALCULATION OF PROFIT/LOSS
OF A CASH BASED BUSINESS