FORM THREE BOOK KEEPING STUDY NOTES TOPIC 11-13

TOPIC 11: INCOMPLETE RECORDS
Statements Showing Profit or Loss From Incomplete Records
Draw up statements to show profit or loss from incomplete records
Some times, businesses, especially small businesses do not maintain a full set of double entry records. Consequently, no trial balance will be produced and a complete set of final accounts cannot be prepared without further analysis of the records that do exist.
Where only records available are the assets and liabilities at the beginning of the year and at the end of the year, it is not possible to prepare a Trading and Profit and Loss account. The assets and liabilities are usually listed in a Statement of Affairs (Similar to a Balance Sheet). This would have been called a Balance Sheet if it had been drawn up from a set of double entry records. Like a Balance Sheet, a Statement of Affairs can be prepared horizontally or vertically.
The only way the profit for the year can be found is by comparing the capital shown in the opening Statement of Affairs with the capital shown in the closing Statement of Affairs.The basic formula is:
Profit Loss = Closing Capital – Opening Capital (Positive figure means Profit and Negative figure means Loss)
It may be that the owner has made drawings during the year, which will account for some of the difference in the capital figures. Similarly the owner might have brought in additional capital during the year, which will also account for some of the difference in the capital figures. In this case the formula must again be modified:-
Profit or Loss = Closing Capital + Drawings during the year – Additional Capital during the year – Opening Capital (Positive figure means Profit and Negative figure means Loss)
Calculation of Profit or Loss by converting the Incomplete Records into Double entry Records,
In this case, in order to calculate the profit or loss of the business during the year, the Trading and Profit and Loss accounts are prepared. For preparing the Trading and Profit and Loss accounts, all necessary information is not available in the books. So first the missing items have to be calculated which are necessary for the preparation of Trading and Profit and Loss accounts.
Example 1
Trading, Profit and Loss Account
Prepare trading, profit and loss account
Example 2
From the following balances extracted from the books of X & Co.,prepare a trading and profit and loss accounton 31st December, 1991.
$
$
Stock on 1st January11,000Returns outwards500
Bills receivables4,500Trade expenses200
Purchases39,000Office fixtures1,000
Wages2,800Cash in hand500
Insurance700Cash at bank4,750
Sundry debtors30,000Tent and taxes1,100
Carriage inwards800Carriage outwards1,450
Commission (Dr.)800Sales60,000
Interest on capital700Bills payable3,000
Stationary450Creditors19,650
Returns inwards1,300Capital17,900
The stock on 21st December, 1991 was valued at $25,000.
Solution
X & Co.Trading and Profit and Loss Account For the year ended 31st December, 1991
To Opening stock
11,000|By Sales60,000
To Purchases39,000
| Less returns i/w1,300
Less returns o/w500
|

58,700


38,500|By Closing stock
25,000
To Carriage inwards
800|


To Wages
2,800|


To Gross profit c/d
30,600|





|




83,700|

83,700



|


To Stationary
450|By Gross profit b/d
30,600
To Rent and rates
1,100|


To Carriage outwards
1,450|


To Insurance
700|


To Trade expenses
200|


To Commission
800|


To Interest on capital
700|


To Net profit transferred to capital a/c
25,200|


|



|




30,600|

30,600

Preparation of Balance Sheet
Prepare balance sheet
Example 3
From the following balances extracted from the books of X & Co.,prepare a balance sheeton 31st December, 1991.
$
$
Stock on 1st January11,000Returns outwards500
Bills receivables4,500Trade expenses200
Purchases39,000Office fixtures1,000
Wages2,800Cash in hand500
Insurance700Cash at bank4,750
Sundry debtors30,000Tent and taxes1,100
Carriage inwards800Carriage outwards1,450
Commission (Dr.)800Sales60,000
Interest on capital700Bills payable3,000
Stationary450Creditors19,650
Returns inwards1,300Capital17,900
The stock on 21st December, 1991 was valued at $25,000.
Solution
X & Co. Balance Sheet as at 31st December, 1991
Liabilities$|Assets$
Creditors
19,650|Cash in hand500
Bills payable
3,000|Cash at bank4,750
Capital17,900
|Sundry debtors30,000
Add Net profit25,200
|Bill receivable4,500


43,100|Stock25,000



|Office equipment1,000



|



65,750|
65,750



|

Calculating Amount of Cash Stolen
Calculate amount of cash stolen
The loss on theft of cash and any other assets may be simply be expensed to the income statement net of any insurance claim received or receivable. Following accounting entries would therefore be required:
DebitLoss on asset theft (balancing amount)
DebitAccumulated Depreciation
CreditAsset (carrying amount)
Calculating the Value of Stock at Cost which had been Stolen
Calculate the value of stock at cost which had been stolen
Activity 1
Calculate the value of stock at cost which had been stolen

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