5.6 Incomplete records

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You will only be asked questions on incomplete records in relation to sole trader businesses



Understanding Incomplete Records

What does incomplete record mean?

When a business does not have a complete set if accounting records, book, and ledger accounts

What could be the possible reasons?

Records could be lost or damaged due to some accident or fire. It represents that the business has decided not to keep double entry accounting records. 

Disadvantages of Incomplete Records

  1. Inaccurate Financial Information: Without full records, it is difficult to ascertain the true financial position of the business.

  2. Increased Errors: More prone to errors due to lack of detailed recording.

  3. Difficult Decision-Making: Hard to make informed business decisions without complete data.

  4. Challenges in Obtaining Credit: Lenders may be reluctant to extend credit due to unreliable financial statements.

  5. Lack of detailed financial data

  6. Difficulty in preparing accurate financial statements

  7. Risk of undetected fraud or errors

Techniques to Manage Incomplete Records

You need a Statement of Affairs: A list of assets and liabilities at a given date, it is similar to a statement of financial position (balance sheet)

1. Opening and Closing Statements of Affairs

  • Opening Statement of Affairs: A statement that shows the assets and liabilities at the beginning of the period, which helps to determine the opening capital.

  • Closing Statement of Affairs: Similar to the opening statement, but for the end of the period to determine closing capital.

2. Calculating Profit or Loss

Formula: Profit/Loss=Closing Capital−Opening Capital+ Drawings−Additional Capital  Opening Capital: From the opening statement of affairs.

Closing Capital: From the closing statement of affairs.

Drawings: Any withdrawals made by the owner for personal use.

Additional Capital: Any additional funds introduced into the business.

3. Deriving Figures from Incomplete Information

  • Sales: Can be calculated using cash receipts and changes in trade receivables.

  • Purchases: Can be derived using cash payments and changes in trade payables.

  • Gross Profit: Sales - Cost of Sales (COS).

  • Trade Receivables: Can be calculated using opening trade receivables, sales, and receipts from trade receivables.

  • Trade Payables: Can be derived using opening trade payables, purchases, and payments to trade payables.

4. Preparing Financial Statements

  • Statement of profit or loss (Income Statement): Derived from calculating revenues and expenses from incomplete data.

  • Statement of Financial Position: Summarizes assets, liabilities, and capital at the end of the period.

Techniques for Missing Figures

Mark-Up, Margin, and Inventory Turnover

Mark-Up: Percentage added to the cost to get the selling price. 

Mark-Up=  Gross Profit x 100

                  Cost of Sales

Margin: Percentage of selling price that is gross profit. 

Margin= Gross Profit ×100

                   Sales


Inventory Turnover: How often inventory is sold and replaced. 


Inventory Turnover=    Cost of Sales

                                 Average Inventory






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