Incomplete Records Mr. Barry A-level Accounting Year 13

Learning Outcomes Students should be able to: Assess the profit or loss made by a business that has minimal accounting records based on a comparison of the value of capital at two different dates Evaluate a system of incomplete records based on comparing capitals with that of full accounting systems Mr. Barry A-level Accounting Year 13

The Reasons for Incomplete Records A Sole Trader or Partnership often has neither the time nor expertise to keep a double-entry bookkeeping system With the price of computers and software packages specifically for accounts becoming more cost effective, it is easier to for a non- accountant to keep basic records Lower accountancy fees by completing simple records in house Mr. Barry A-level Accounting Year 13

Advantages of maintaining limited accounting records Simple and easy to do, particularly for small businesses that may not have financial expertise Do not need to hire a permanent fully qualified accountant Do not need expensive tailor-made accounting software Mr. Barry A-level Accounting Year 13

COMMON WTH SOLE TRADERS Since they do not keep ledger accounts therefore they have no trial balance. To find the profit it is necessary to use the figures available and to use our knowledge of the relationship between these figure. ACCOUNTS ARE COMPILED FROM BANK STATEMENTS AND INVOICES PROVIDED Mr. Barry A-level Accounting Year 13

Method 1 – Net worth/ Net Assets Balance sheet method Method 2 - Mark up and Margin Two methods Mr. Barry A-level Accounting Year 13

ASSETS = LIABILITIES + CAPITAL ASSETS – LIABLITIES = CAPITAL ACCOUNTNG EQUATION Mr. Barry A-level Accounting Year 13

PROFIT INCREASES CAPITAL CAPITAL INTRODUCED INCREASES CAPITAL DRAWNGS REDUCE CAPITAL Opening Capital Add Profit Add Capital Introduced Less Drawings = Closing capital CHANGES TO CAPITAL Mr. Barry A-level Accounting Year 13

1)CALCULATE THE OPENING CAPITAL 2)CALCULATE THE CLOSING CAPITAL DIFFERENCE IS PROFIT, DRAWINGS AND CAPITAL INTRODUCED NET WORTH CAPITAL Mr. Barry A-level Accounting Year 13

OPENING CAPTAL €100,000 CLOSING CAPITAL €150,000 DRAWNGS FOR THE YEAR €15,000 NO CAPITAL INTRODUCED WHAT WAS THE ANNUAL PROFIT? EXAMPLE 1 Mr. Barry A-level Accounting Year 13

Sales- COS=Gross Profit Cost of Sales = Opening Stock + Purchases – closing stock COS + Clos stock – Purchases= Opening stock Net profit = Gross profit – expenses Net profit + expenses = Gross profit This method depends on knowledge of the relationship between the various figures making up profit and loss. Mr. Barry A-level Accounting Year 13

MARK UP is the Gross Profit expressed as a percentage of the COS – Mark up % OF COST MARGIN is the gross profit as a percentage of selling price – Margin % OF SALES PRICE MARK UP AND MARGIN Mr. Barry A-level Accounting Year 13

Opening Stock10,000 Purchases50,000 Closing stock 12,000 Mark up 25% EXAMPLE MARK UP Mr. Barry A-level Accounting Year 13

Sales? Less COS Op Stock 10,000 + Purchases 50,000 - Clos stock 12,00048,000 Gross profit ? COS + MARK UP = SALES 48, ,000 (25%) = 60,000 THEREFORE SALES = 60,000 Mark up cont. Mr. Barry A-level Accounting Year 13

– Opening Stock 36,000 – Sales120,000 – Closing stock 40,000 – Margin 25% Example Margin Mr. Barry A-level Accounting Year 13

Sales120,000 Less COS Opening stock 36,000 Purchases? Less closing stock(40,000) ? Gross Profit ? Gross profit = 25% Sales = 30,000 Sales – gross Profit = COS= 90,000 COS +Clos stock = Opg stock +purchases Therefore Purchases = 94,000 Margin cont. Mr. Barry A-level Accounting Year 13

Key term Statement of affairs: a basic statement of financial position (Balance sheet), that can be used to calculate missing figures such as profit, loss, opening or closing capital Mr. Barry A-level Accounting Year 13

Statement of affairs N.B REMEMBER YOUR ACCOUNTING EQUATION ASSETS- LIABILITIES= ? Mr. Barry A-level Accounting Year 13

Example ££ Assets Machinery10,000 Inventory2,000 Trade Receivables1,000 Bank5,500 18,500 Liabilities Trade payables3,500 Other Payables (accruals)5004,000 CAPITAL? Mr. Barry A-level Accounting Year 13 14,500 Statement of Affairs for J. Wimpenny at 1 January 2013