1. Chapter 16: incomplete records
Learning outcomes:
Prepare accounts from incomplete records
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2. Incomplete records questions
Incomplete records occur when a business does not have a full set of accounting records because:
The proprietor of the business does not keep a full set of accounts;
Some of the business accounts are accidentally lost or destroyed.
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3. Preparing accounts from incomplete records
To understand what incomplete records are about, it will obviously be useful now to look at what exactly might be incomplete.
The opening statement of financial position
Credit sales and receivables
Purchases and trade payables
Purchases, inventories and the cost of sales
Stolen goods or goods destroyed
The cash book
Accruals and prepayments
Drawings
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4. Preparing accounts from incomplete records
The opening statement of financial position
Example
A business has the following assets and liabilities as at 1 January 20X3.
Fixtures and fittings at cost $7,000
Provision for depreciation, fixtures and fittings ,000
Motor vehicles at cost ,000
Provision for depreciation, motor vehicles ,800
Inventory ,500
Trade receivables ,200
Cash at bank and in hand ,230
Trade payables ,700
Prepayment
Accrued rent ,000
Required
Prepare a statement of financial position for the business, inserting a balancing figure for proprietor’s capital.
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5. Preparing accounts from incomplete records
The opening statement of financial position
Solution
STATEMENT OF FINANCIAL POSITION AS AT 1 JANUARY 20X3.
Non-current assets
Fixtures and fittings at cost $7,000
Less accumulated depreciation ,000
3,000
Motor vehicles at cost ,000
Less accumulated depreciation ,800
5,200
8,200
Current assets
Inventory ,500
Trade receivables ,200
Prepayment
Cash ,230
11,380
19,580
Proprietor’s capital as at 1 January 20X ,880
Current liabilities
Trade payables ,700
Accrued ,000
5,700
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6. Preparing accounts from incomplete records
Credit sales and receivables
Credit sales are:
Payments received from trade receivables $X
Plus closing balance of trade receivables X
Less opening balance of trade receivables (X) X
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7. Preparing accounts from incomplete records
Purchases and trade payables
Payments to trade payables during the period $X
Plus closing balance of trade payables X
Less opening balance of trade payables (X)
Purchases during the period X
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8. Preparing accounts from incomplete records
Purchases, inventories and the cost of sales
Since opening inventories $X
plus purchases X
less closing inventories (X)
equals the cost of goods sold X
Then the cost of goods sold X
plus closing inventories X
less opening inventories X
equals purchases X
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9. Preparing accounts from incomplete records
Stolen goods or goods destroyed
Example
Orlearn Flames is a shop which sells fashion clothes. On 1 January 20X5, it had inventory which cost $7,345. During the 9 months to 30 September 20X5, the business purchased goods from suppliers costing $106,420. Sales during the same period were $154,000. The shop makes a gross profit of 40% on cost for everything it sells. On 30 September 20X5, there was a fire in the shop which destroyed most of the inventory in it. Only a small amount of inventory, known to have cost $350, was undamaged and still fit for sale.
How much inventory was lost in the fire?
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10. Preparing accounts from incomplete records
Stolen goods or goods destroyed
Solution
Sales $154,000
Gross profit ,000
Cost of goods sold ,000
(b) Opening inventory, at cost $ 7,345
Plus purchases ,420
113,765
Less closing inventory, at cost
Equals cost of goods sold and goods lost ,415
(c) Cost of goods sold and lost ,415
Cost of goods sold ,000
Cost of goods lost ,415
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11. Preparing accounts from incomplete records
Accruals and prepayments
Example
On 1 April 20X6 a business had prepaid rent of $700. During the year to 31 March 20X7 it pays $9,300 in rent and at 31 March 20X7 the prepayment of rent is $1,000. Calculate the I/S figure for rent expense.
Solution
The cost of rent in the I/S account for the year to 31 March 20X7 is the balancing figure in the following T account.
RENT EXPENSE
Prepayment: balance b/f $700
Cash ,300
10,000
Balance b/f ,000
I/S account $9,000
Prepayment: balance c/f ,000
10,000
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12. Preparing accounts from incomplete records
Drawings
Drawings would normally represent no particular problem at all in preparing a set of final accounts from incomplete records, but it is not usual for questions to introduce a situation in which:
The business owner pays income into his bank account which has nothing whatever to do with the business operations.
The business owner pays money out of the business bank account for items which are not business expense.
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