Incomplete Records

Incomplete Records
For many small businesses, they do not maintain a full set of double-entry books. All they keep are just invoices and bank statement. The preparation of the profit and loss account and balance sheet 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.

Trading and profit and loss account

T. Lee Trading and Profit and Loss Account for the year ended
$ $

Sales (1) Less: COGS Opening stock Add: Purchase(2) Less: closing stock Gross Profit (3) Add: Discount received (4) Less: Expenses (5) x x x

x x x x

Rent
Light

x
x x x

Working 1:
Sales = Cash Sales + Credit Sale

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Cash Sales
Cash Sales may be found in cash book Cash book may be prepared to update the cash book and reconcile the cash book balance with the bank statement balance. to identify any missing figures e.g.: cash sales, sundry expenses, cash drawings and cash misappropriated. NEXT

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

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Working 2:
Purchases = Cash Purchases + Credit Purchases

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Cash/Credit purchases
Cash Purchases may be found in cash book. Credit Purchases Total Creditors Account to use accounting ratio
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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.)
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Introduction of accounting ratios

1.
2.

Mark-up Margin

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Mark-up:
Refer to profit which expressed as a fraction or percentage of the cost price.

Margin;
Refer to profit which expressed as a fraction or percentage of the selling price.

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Mark-up =

Profit (P) Cost of Goods Sold (C) Profit (P) Sales (S) X 100%

X 100%

Margin =

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Relationship of 2 ratios

Sales = Cost + Profit S = C + P

Mark-up Margin P P ? C S P P => P C+P C S Margin Mark-up P P ? C S P P P => C+P C S

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Example 1
Mark-up is 20%, what is margin? Mark-up: 20 Margin: 20 100+20 100

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Example 2
Margin is 25%, what is mark-up? Margin: 25 Mark-up: 25 100 75

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Working 4:
Income earned = Cash received + Prepaid last year Accrued last year Prepaid this year + Accrued this year

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Working 5:
Expenses incurred = Cash paid + Prepaid last year Accrued last year Prepaid this year + Accrued this year

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Balance Sheets

Balance Sheet
Net Profit = Closing capital Opening capital + Drawings Capital introduced Opening capital Balance = Opening assets Opening liabilities Sometimes, statement of Affairs need to be prepared in order to find out the opening capital balance.

Example
Balance Sheet at 31 June 19-1 (extracts) Stock $2000 Debtors $2000 Creditors $ 1000 During this period: $ Receipts from debtors 6000 Cash Sales 1000 Payment to creditors 4000 Payment to Rent 500 At 30 June 19-2: Debtors $1000 Creditors $1000 Mark-up 20% Accrued at 30 June 19-2 $200 Prepare final accounts for the year ended 30 June 19-2.

Trading and profit and loss account for the year ended 30 June 19-2 $ $
Sales (Working 1) 6000 2000 4000 6000 1000

Less: COGS Opening stock Add: Purchase (Working 2)

Less: closing stock Gross profit (Working 3) Less: Expenses Rent (500 + 200) Net Profit

5000 1000 700 300

Working 1
Total Debtors
Bal b/d Sales (bal. fig.) 1000 5000 7000 Cash Bal c/d 6000 1000 7000

Sales = Cash Sales + Credit Sales

= 1000 + 5000
= $6000 BACK

Working 2
Total Creditors
Cash Bal c/d 4000 1000 5000 Bal b/d Purchase (bal.fig.) 1000 4000 5000

Sales = Cash Purchases + Credit Purchases

= 0 + 4000
= $4000 BACK

Working 3

Mark-up Margin 20 20 100+20 100

Sales = Cost + Profit 6000 = x + 6000 * 20/120 6000 = x + 1000 x = 5000

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Further Example

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) Less: COGS

81000

Opening stock
Add: Purchase (59630+14210-11520)

23750
62320 86070

Less: Fire loss

Gross profit (81000 * 25/125) Less: Expenses Expenses Fire loss (21270-15000) Net Profit

[3] (21270) 64800 [2]

16200 [1]

4000 6270 10270 5930