Preparing Financial Statements Incomplete Records

Previous Lesson Revision Complete the trial balance extract. Capital or revenue expenditure. Capital or revenue income.

Aims of the Session Defining incomplete records. Working out incomplete records. Preparing year end statements from incomplete records.

What is an Incomplete Record? When some of the accounting system is missing. They occur when: Information has been lost due to theft, carelessness, fire, flood There are inadequate records kept by the business owner. There are differences between the accounts and records. Timing differences.

Information Available to Accountant Cash book. Banking details. Invoices (purchases and sales). Expenses. Amounts owing to suppliers and from customers. Assets and liabilities, current and non current. Always act with integrity when preparing financial statements. Often clients may operate a single entry system which you may have to construct double entry – although this will be time consuming.

Information To Be Calculated Capital. Purchases and sales. Cash book summary. Profit or loss for the year. Drawings. Tools needed for

Tools of Accounting Trial balance or statement of assets and liabilities. Construct of a cash book and/or bank account. Control accounts. Preparation of financial statements Also the accounting equation. Gross profit mark-up and margin (next lesson) Ask what the accounting equation is?

Cleopatra – tutor led

Calculating Information List of Assets and Liabilities for Cleopatra’s Snake Emporium 1 Jan X4 31 Dec X4 £ Shop fittings 8,000 Inventory 25,600 29,800 Trade receivables 29,200 20,400 Bank (money at bank) 5,000 Not known Admin expenses owing 200 300 Bank Summary for X4 Receipts from trade receivables 127,800 Payments to trade payables 82,600 Drawings 12,500 Admin expenses 30,600 Calculate capital. Assets – liabilities = capital, from these figures we’ll calculate the opening capital, cash book summary for the year, purchases & sales for the year & profit or loss for the year & a year end financial position.

Calculate the Opening Capital

Capital List of Assets and Liabilities for Cleopatra’s Snake Emporium as at 1 Jan x4 1 Jan X4 £ Shop fittings 8,000 Inventory 25,600 Trade receivables 29,200 Bank (money at bank) 5,000 67,800 Less liabilities Trade payables 20,800 Admin expenses owing 200 21,000 Capital as at 01 Jan X4 46,800 Bank is an asset here, but be careful that it’s not shown as a credit amount and a liability ie an overdraft. Opening capital = assets – liabilities = 67,800 – 21,000 = 46,800 Print out handy to give to learners of the initial list.

Calculate the Bank Balance (Cash Book Summary)

Cash Book (Bank Columns) x4 £ 1 Jan Bal b/d 5,000 Payments to trade payables Receipts from trade receivables 127,800 Drawings 12,500 Admin expenses 30,600 31 Dec Bal c/d 7,100 132,800 X5 Balance c/d The missing figure of the bank balance is the balance carried down at the end of the year. Watch out for balances c/d as a debit, which will mean the bal b/d is a credit and the bank is overdrawn Missing figure for the bank balances.

Calculate the Purchases & Sales

Purchases – Using the PLCA X4 £ 1 Jan Payments to trade payables 82,600 Bal b/d 20,800 31 Dec Bal c/d 16,000 Purchases 77,800 98,600 X5 We have the payments through out the year, we have the balances at the beginning and end of the year, so by drawing up the t-account the missing figure will be the purchases for the year.

Purchases Using a Formula Purchases for the year = Payments in the year - Trade payables at the start of the year + Trade payables at the end of the year If applicable – but I prefer doing T accounts!

Sales – Using the SLCA SLCA X4 £ 1 Jan Bal b/d 29,200 Receipts from trade payables 127,800 31 Dec Sales 119,000 Bal c/d 20,400 148,200 X5 We have the receipts through out the year, we have the balances at the beginning and end of the year, so by drawing up the t-account the missing figure will be the sales for the year. This only works when the business only has credit sales, if there is a mixture of credit and cash sales then further investigation may be required, and reconstruction of the cash book required. Be aware that the exam may include erroneous information such as allowance for doubtful debts, which doesn’t got into the SLCA.

Sales Using a Formula Sales for the year = Sales in the year - Trade receivables at the start of the year + Trade receivables at the end of the year

Calculate the amount spent on admin expenses through out the year and sent to the profit or loss account.

Admin Expenses Admin Expenses X4 £ Cash/bank 30,600 1 Jan Balance b/d 200 31 Dec Balance c/d 300 Statement of profit or loss 30,700 30,900 X5 Bal b/d Again, using a control account we can see how much has been spent throughout the year, and what is attributed to the year’s costs as well by using accruals and prepayments – if necessary.

Profit or Loss Statement £ Sales Revenue 119,000 Calculated Opening inventory 25,600 Figures given Purchases 77,800 103,400 Less Closing inventory 29,800 Cost of sales 73,600 OI + P - CI Gross Profit 45,400 Sales – cost of sales Less expenses Admin expenses 30,700 Profit for the year 14,700 Gross profit - expenses

Statement of Financial Position £ Non current assets Shop fittings 8,000 Current assets Inventory 29,800 Trade receivables 20,400 Bank 7,100 57,300 Less current liabilities Trade payables 16,000 Accrual of admin expense 300 Total current liabilities 16,300 Net Current assets 41,000 Net assets 49,000 Financed By Opening capital 46,800 Add profit for the year 14,700 61,500 Less drawings (12,500) Closing capital

Mark Antony Owns a rival pet shop to Cleopatra – specialising in rodents. You are to calculate: Trade receivables at 31 March X8 Trade payable at 31 March X8 Loss or gain on fixtures and fittings VAT due to HMRC Admin expenses to be shown on P&L Prepare: Statement of profit or loss Statement of financial position

Lesson Recap By using control accounts missing figures can be calculated. Formulas can also be used. Either method is acceptable, use whatever you find the simplest.

Questions