1. Preparing Financial Statements Incomplete Records

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

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

4. 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.

5. 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.

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

7. 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?

8. Cleopatra – tutor led

9. 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.

10. Calculate the Opening Capital

11. 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.

12. Calculate the Bank Balance (Cash Book Summary)

13. 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.

14. Calculate the Purchases & Sales

15. Purchases – Using the PLCAX4
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.

16. 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!

17. 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.

18. 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

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

20. 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.

21. 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

22. 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

23. 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

24. 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.

25. Questions