Chapter 16: incomplete records Learning outcomes: Prepare accounts from incomplete records TITLE HERE 00 MONTH 0000

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. TITLE HERE 00 MONTH 0000

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 TITLE HERE 00 MONTH 0000

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 4,000 Motor vehicles at cost 12,000 Provision for depreciation, motor vehicles 6,800 Inventory 4,500 Trade receivables 5,200 Cash at bank and in hand 1,230 Trade payables 3,700 Prepayment 450 Accrued rent 2,000 Required Prepare a statement of financial position for the business, inserting a balancing figure for proprietor’s capital. TITLE HERE 00 MONTH 0000

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 4,000 3,000 Motor vehicles at cost 12,000 Less accumulated depreciation 6,800 5,200 8,200 Current assets Inventory 4,500 Trade receivables 5,200 Prepayment 450 Cash 1,230 11,380 19,580 Proprietor’s capital as at 1 January 20X3 13,880 Current liabilities Trade payables 3,700 Accrued 2,000 5,700 TITLE HERE 00 MONTH 0000

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 TITLE HERE 00 MONTH 0000

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 TITLE HERE 00 MONTH 0000

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 TITLE HERE 00 MONTH 0000

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? TITLE HERE 00 MONTH 0000

Preparing accounts from incomplete records Stolen goods or goods destroyed Solution Sales $154,000 Gross profit 44,000 Cost of goods sold 110,000 (b) Opening inventory, at cost $ 7,345 Plus purchases 106,420 113,765 Less closing inventory, at cost 350 Equals cost of goods sold and goods lost 113,415 (c) Cost of goods sold and lost 113,415 Cost of goods sold 110,000 Cost of goods lost 3,415 TITLE HERE 00 MONTH 0000

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 9,300 10,000 Balance b/f 1,000 I/S account $9,000 Prepayment: balance c/f 1,000 10,000 TITLE HERE 00 MONTH 0000

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. TITLE HERE 00 MONTH 0000