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Accounting For Incomplete Record PDF

The document discusses accounting for incomplete or single entry records. [1] Single entry records do not follow double entry principles and do not allow preparation of proper financial statements. [2] Two methods can be used to calculate profit with single entry records: the statement of affairs method compares capital at the start and end of the period, and the conversion method converts single entry records into double entry format. [3] The document provides steps for preparing accounts to obtain missing figures and convert to double entry, allowing calculation of profit.

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Sumiya Yousef
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835 views23 pages

Accounting For Incomplete Record PDF

The document discusses accounting for incomplete or single entry records. [1] Single entry records do not follow double entry principles and do not allow preparation of proper financial statements. [2] Two methods can be used to calculate profit with single entry records: the statement of affairs method compares capital at the start and end of the period, and the conversion method converts single entry records into double entry format. [3] The document provides steps for preparing accounts to obtain missing figures and convert to double entry, allowing calculation of profit.

Uploaded by

Sumiya Yousef
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ACCOUNTING FOR

INCOMPLETE RECORD

CH 2
INCOMPLETE RECORDS
• Incomplete records or Single entry system refer to a
bookkeeping system that does not follow book-keeping
principles or double entry system.
• Kohler defines single entry system as “a system of book
keeping which as a rule only records of cash and personal
accounts are maintained, it is always incomplete double entry
varying with circumstances”
• Defined as – “An incomplete, unscientific and unsystematic
method of keeping the books of accounts of a trading
enterprise or service organisation”
FEATURES
- Unscientific
- No trial balance
- Difficult to prepare financial statements
- Not suitable for companies
- True profit cannot be ascertained
- Financial position cannot be ascertained
- Difficulty in Location of errors
- More flexible
- Chance of fraud
ADVANTAGES
- Simple method of accounting
- Economical
- Suitable for small businesses
- Concealment of income
- Record transactions quickly
DEMERITS
Unscientific Errors not located
Financial statements not prepared No trial balance
Accounts receivable and payables not easily ascertained
Arithmetical accuracy cannot be checked
Nominal accounts are not maintained
It does not record of all assets and liability
Financial position of business cannot be judged
True profit cannot be ascertained
It is not suitable to limited companies
It is not acceptable to income tax authorities
Division of work is not possible No office control
No check on honesty of employees Fraud & misappropriation
Difficult to settle financial claims Difficult to obtain bank loans
COMPUTATION OF PROFIT

The profit or loss in case of a business maintaining


accounts according to single entry system can be
computed by two methods namely,

1. Statement of affairs (capital comparison) method


2. Conversion (final accounts) method.
STATEMENT OF AFFAIRS
Is a statement of assets and liabilities prepared on any date
to find out the capital.
Capital = Assets less Liabilities

•Statement of affairs is a list of assets and liabilities held by the


business at a particular point in time. It is used for calculating
increase or decrease in capital and for calculation of net profit.

•Opening statement of affairs (opening balance of assets &


liabilities) calculates opening capital and closing capital from the
closing balances of assets & liabilities.

•If all the closing figures are not given, first find the missing
figure & then calculate the closing capital. (Eg missing- Bank)
STATEMENT OF AFFAIRS METHOD
OR NET WORTH METHOD
According to this method, the profit or loss is computed by comparing the capital of the
business on two different dates. The following procedure is followed
1) A statement of affairs at the beginning of the year is prepared to ascertain capital at the
beginning.
2) Closing statement of affairs is prepared to ascertain capital at the end
3) Profit is ascertained by
Capital at the end xxx
Add: drawings xx
‐‐‐‐‐‐‐‐‐‐
xxxx
Less further capital introduced xx
‐‐‐‐‐‐‐‐‐‐
xxxx
Less capital at the beginning xxx
‐‐‐‐‐‐‐‐‐‐‐
Profit made during the year xx
Gross

Less: Adjustments: Depreciation


Bad debts & PDD
Interest on Capital
Accrued expenses / Prepaid Income
Add: Interest on drawings
Prepaid expenses/ Accrued Income ________
NET PROFIT XXX
CONVERSION METHOD

Conversion of single entry in to double entry involves the complete


process of journalizing, posting, balancing and preparation of trial
balance. Then final accounts are to be prepared .if any information is
missing, it should be ascertained by preparing the relevant accounts
before preparation of final accounts
FOLLOWING STEPS ARE TAKEN
1) Prepare statement of affairs in the beginning to ascertain capital in the
beginning
2) Prepare cashbooks, cashbook reveals missing figure cash or bank
balance at the beginning or at the end as the case may be. Sometimes
cashbook reveals the amount of sundry expenses or drawings or cash
purchases(if credit side is shorter than debit) or cash sales or sundry
incomes or capital introduced(if debit side is shorter than credit side)
3) Then prepare I(1)total debtors account (2) total creditors account,(3) bills
receivable account (4) bills payable account(these accounts help in finding
out credit sales, credit purchases, debtors or credit balances
4) calculate total sales by adding credit sales and cash sales total purchases
by adding cash purchases and credit purchases
5) Information relating to nominal accounts can be ascertained from the
cashbook. Real accounts and amounts outstanding are given by way of
information. These accounts can be completed
6) After these it will be possible to prepare final accounts in the usual manner
2. BANK & CASH A/C:
Closing balance of bank a/c can be found as the balancing
figure after adjusting the opening balance for all receipts &
payments
Then prepare cash a/c to confirm the balance. If any missing
balances on DR side, its entered as SALES and CR balances
as DRAWINGS

Cash Account

Balance B/d xx Cash payments xx

Cash receipts xx Balancing Figure XX


(Drawings)
xx
Balance c/d

XXX XXX

Balance B/d xx
3. TOTAL SALES ACCOUNT:
A sales/ Debtor account is prepared (similar to Sales Ledger
Control A/c. Known figures are inserted and balancing figure
is the Total credit Sales.

debtors

Cheques dishonored x
TOTAL PURCHASES ACCOUNT
A Purchase/ Creditor account is prepared ,Known figures are
inserted and balancing figure is the Total credit Purchases.

Cheques dishonored x
Interest charged by creditors x
Expenses:-
•To be taken to P&L A/c
•Calculated as balancing figure using opening accruals & prepayments and
amounts paid through bank.
•A Business Expense A/c is created.

Expense Account

Balance b/d (prepayments) Xx Balance b/d (accruals) Xx

Bank payments Xx Balance c/d (prepayments) Xx


Balance c/d (accruals) Xx Balancing figure
Xx
(p&l a/c expenses)

Xxx Xxx

Balance b/d (prepayments) Xx Balance b/d (accruals) Xx


DEPRECIATION:-
Is calculated using opening & closing balances of assets and
the purchases & disposals during the year.
Balancing figure represents depreciation and any Profit or
loss on disposal of asset (combined figure)

A Fixed Asset A/c is created


ASSET Account
Balance B/d xx Disposals xx

Purchases (Additions) xx Balancing Figure XX


(P&L A/c Expenses)
xx
Balance c/d

XXX XXX

Balance B/d xx

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