1. ACCA 1.1 INCOMPLETE RECORDS

2. Not all businesses keep a proper set of accounting records? Small businesses, such as shopkeepers, market stall holders, hairdressers, landscape gardeners, do not always have the knowledge, expertise and time to keep a complete set of accounting records. However, these businesses will need to have financial statements prepared annually (for tax purposes if nothing else).

3. So how can the financial statements be prepared if the bookkeeping records are inadequate or incomplete?

4. Four basic techniques used for incomplete records 1. Construction of opening & closing balance sheets or capital 2. Construction of a cash and / or bank summary 3. Construction of sales and purchase figures….usually done via control accounts 4. Use of gross / net profit percentage

5. Give me four reasons why capital might change. 1. 2. 3. 4. Construction of opening & closing balance sheets or capital Introduction of extra capital Withdrawal of capital Profit earned by the business Loss suffered by the business

6. PROFIT OR LOSS = THE INCREASE OR DECREASE IN CAPITAL. We can calculate profit when we have details of the opening and closing capital. Activity 1 The opening capital of Edna Clouds at 1 Jan 2005 was £2,000. At 31 December 2005 the capital figure was £8,500. How much profit has been earned during the year?

7. Opening capital2,000 Closing capital8,500 Profit (must be)6,500

8. We can calculate profit when we have details of the opening and closing capital and have details of capital introduced and withdrawn during the year. Activity 2 The opening capital of Ivy Cladwall at 1 Jan 2005 was £16,000. On 1 July 2005 she introduced further capital of £4,000 and during the year withdrew a total of £8,000. At 31 December 2005 the capital figure was £30,000. How much profit has been earned during the year?

9. Opening capital 16,000 Capital introduced 4,000 Withdrawals- 8,000 12,000 Closing capital 30,000 Profit (must be) 18,000

10. Activity 3 The opening capital of Ivor Pain at 1 Jan 2005 was £32,000. During the year he withdrew £1,000 a month. At 31 December 2005 the capital figure was £18,000. How much profit or loss has been earned or suffered during the year?

11. Opening capital 32,000 Withdrawals-12,000 20,000 Closing capital 18,000 Loss (must be) - 2,000

12.  MCQ December 2005: 1

13. MCQ December 2005: 1 Detail£Detail£ Drawings68000 net assets (capital) b/d 186000 Drawings20000 Capital introduced 50000 net assets (capital) c/d 274000Profit126000 362000362000

14. Activity 4 What do we mean by net assets? What is the accounting equation? PROFIT OR LOSS WHEN THE NET ASSETS AT THE BEGINNING AND END OF THE YEAR ARE KNOWN. FIXED ASSETS + CURRENT ASSETS – LT LIABILITIES – CURRENT LIABILITIES ASSETS – LIABILITIES = CAPITAL + PROFIT - DRAWINGS

15. Activity 5 Eileen Dover has not kept proper bookkeeping records but has kept notes in diary form of the transactions of her business. She is able to give you details of her assets and liabilities as at 31 December 2004 and 31 December 2005: Dec 2004Dec 2005 £ £ Van2,0001,600 (after depreciation) Fixtures1,4001,260 (after depreciation) Stock1,7001,980 Debtors1,9002,880 Bank2,2003,400 Cash 200 400 Creditors 400 600 Loan1,200 800 Drawings1,800

16. Draw up a Statement of Affairs at each balance sheet date. December 2004December 2005 £ £ £ £ Van Fixtures Stock Debtors Bank Cash Creditors Loan Capital Profit Drawings 2,000 1,400 3,400 1,700 1,900 2,200 200 6,000 - 400 5,600 -1,200 7,800 1,600 1,260 2,860 1,980 2,880 3,400 400 8,660 8,060 - 800 10,120 7,800 - 600 10,120 -1,800 4,120

17. This method of calculating profit is unsatisfactory and should only be done in exceptional circumstances. A full set of financial statements should be drawn up from the available information.

18. Construction of a cash or bank summary If we know the opening and closing bank account balances we might be able to calculate a missing figure for sales receipts or purchases

19. Construction of a cash or bank summary example Donald does not keep proper accounting records. His bank statements show that his opening bank balance was £100 and his closing bank balance was £400. He knows that his payments to suppliers were £1,200 and he took drawings of £700 (paid by cheque) but he has no idea of his receipts from debtors?

20. DateDetail£DateDetail£ Bal b/d 100Creditors1200 Debtors2200Drawings700 Bal c/d 400 23002300 T Account Construction of an opening cash or bank summary example We now know our receipts from debtors, which might be the sales figure Or could help us calculate the sales figure

21. Construction of sales and purchases

22. Construction of sales and purchase figures….usually done via control accounts  Construct a control account  Control accounts essentially contain 4 items.. 1. Opening debtors 2. Closing debtors 3. Credit sales 4. Receipts from debtors If we know 3 items, we can calculate the fourth!!

23. Construction of sales and purchases Donald does not keep proper accounting records. He knows that his opening debtors were £500 and his closing debtors were £400. He has already reconstructed his bank account and knows that receipts from debtors were £2,200. He needs to calculate his sales

24. Detail£Detail£ Bal b/d 500 Bank receipts 2200 Sales2100 Bal c/d 400 26002600 Debtors control Construction of debtors control account to calculate sales

25. June 2004 MCQ’s 9 & 10

26. Use of gross / net profit percentage  Missing figures can also be calculated using gross or net profit percentages  If we know that gross profit is 20% of sales, we can calculate the cost of sales if we know our sales figure.  If we know cost of sales and our opening and closing stock, we can easily calculate purchases

27. Use of gross / net profit percentage example  Duck has sales of £100. He knows that his gross profit percentage is 20% of sales.  His opening stock was £20 and his closing stock was £25. What is Ducks purchases? 1. C.O.S is 80% of £100 = £80 2. £20 + purchases? - £25 = £80 3. Purchases = £85

28. Question 1