2 Incomplete RecordsFor 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.
3 Reason for incomplete record Lack of accounting experience to maintain records.Cash misappropriated by the assistant.Goods stolen or lost by fire.
5 Trading and Profit and Loss Account T. Leefor the year ended$ $Sales (1) xLess: COGSOpening stock xAdd: Purchase(2) xLess: closing stock x xGross Profit (3) xAdd: Discount received (4) xxLess: Expenses (5)Rent xLight x x
7 Cash Sales Cash Sales may be found in cash book Cash book may be preparedto 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
8 Credit Sales Credit Sales to be found in Total Debtors Account to use accounting ratioBACK
9 Working 2:Purchases = Cash Purchases + Credit PurchasesNEXT
10 Cash/Credit purchases Cash Purchases may be found in cash book.Credit Purchases Total Creditors Account to use accounting ratioBACK
11 Working 3:Gross ProfitTo use ratios such as mark-up and margin to find gross profit figuresThen use gross profit figures to find missing figures. (e.g.: purchases, cost of good sold, closing stock, etc.)NEXT
12 Introduction of accounting ratios Mark-upMarginNEXT
13 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.NEXT
14 Mark-up = Profit (P) Cost of Goods Sold (C) Margin = Profit (P) Sales (S)X100%X100%NEXT
22 Balance Sheet Net Profit = Closing capital – Opening capital + Drawings – Capital introducedOpening capital Balance= Opening assets – Opening liabilitiesSometimes, statement of Affairs need to be prepared in order to find out the opening capital balance.
23 Example Balance Sheet at 31 June 19-1 (extracts) Stock $2000 Debtors $2000Creditors $ 1000During this period: $Receipts from debtorsCash SalesPayment to creditorsPayment to RentAt 30 June 19-2: Debtors $1000Creditors $1000Mark-up 20%Accrued at 30 June 19-2 $200Prepare final accounts for the year ended 30 June 19-2.
24 Trading and profit and loss account for the year ended 30 June 19-2 $ $Sales (Working 1)Less: COGSOpening stockAdd: Purchase (Working 2)6000Less: closing stock5000Gross profit (Working 3)Less: ExpensesRent ( )Net Profit
29 Stock loss Stock loss (e.g. $1000) without insurance claim Dr. Profit and loss $1000Cr. Trading $1000Stock loss (e.g. $1000) with insurance claim (e.g. $800)Dr. Bank $800Dr Profit and loss $200Cr Trading $1000(net loss)
30 Balance Sheet at 31 June 19-1 (extracts) Stock $23750Debtors $16000Creditors $11520During this period: $Receipts from debtorsCash SalesPayment to creditorsPayment to expensesAt 30 June 19-2: Debtors $18780Creditors $14210The 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.
31 Trading and Profit for the year ended 30 June 19-2 $ $Sales ( )Less: COGSOpening stockAdd: Purchase ( )86070Less: Fire loss (21270) Gross profit (81000 * 25/125) Less: ExpensesExpensesFire loss ( )Net Profit