1. Incomplete Records

2. Incomplete Records
For many small businesses, they do not maintain a full set of double-entry books.
All they keep are just invoices and bank statement.
The preparation of the profit and loss account and balance sheet in circumstances where the bookkeeping records are inadequate or incomplete.

3. Reason for incomplete record
Lack of accounting experience to maintain records.
Cash misappropriated by the assistant.
Goods stolen or lost by fire.

4. Trading and profit and loss account

5. Trading and Profit and Loss Account
T. Lee
for the year ended
$ $
Sales (1) x
Less: COGS
Opening stock x
Add: Purchase(2) x
Less: closing stock x x
Gross Profit (3) x
Add: Discount received (4) x x
Less: Expenses (5)
Rent x
Light x x

6. Working 1:
Sales = Cash Sales + Credit Sale
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7. Cash Sales Cash Sales  may be found in cash book
Cash book may be prepared
to update the cash book and reconcile the cash book balance with the bank statement balance.
to identify any missing figures e.g.: cash sales, sundry expenses, cash drawings and cash misappropriated.
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8. Credit Sales Credit Sales  to be found in Total Debtors Account
 to use accounting ratio
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9. Working 2:
Purchases = Cash Purchases + Credit Purchases
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10. Cash/Credit purchases
Cash Purchases  may be found in cash book.
Credit Purchases  Total Creditors Account
 to use accounting ratio
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11. Working 3:
Gross Profit
To use ratios such as mark-up and margin to find gross profit figures
Then use gross profit figures to find missing figures. (e.g.: purchases, cost of good sold, closing stock, etc.)
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12. Introduction of accounting ratios
Mark-up
Margin
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13. Mark-up:
Refer to profit which expressed as a fraction or percentage of the cost price.
Margin;
Refer to profit which expressed as a fraction or percentage of the selling price.
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14. Mark-up = Profit (P) Cost of Goods Sold (C) Margin = Profit (P)
Sales (S) X
100% X
100%
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15. Relationship of 2 ratios

16. Sales = Cost + Profit S = C + P Mark-up  Margin Margin  Mark-up P P? C S P P P
=>   C
C+P S P P ?   S C P P P 
=> 
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C+P C S

17. Example 1 Mark-up is 20%, what is margin? Mark-up: 20  Margin: 20 100
100+20
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18. Example 2 Margin is 25%, what is mark-up? Margin: 25  Mark-up: 25 10075
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19. Working 4: Income earned
= Cash received + Prepaid last year – Accrued last year –Prepaid this year + Accrued this year
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20. Working 5: Expenses incurred
= Cash paid + Prepaid last year – Accrued last year – Prepaid this year + Accrued this year
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21. Balance Sheets

22. Balance Sheet Net Profit
= Closing capital – Opening capital + Drawings – Capital introduced
Opening capital Balance
= Opening assets – Opening liabilities
Sometimes, statement of Affairs need to be prepared in order to find out the opening capital balance.

23. Example Balance Sheet at 31 June 19-1 (extracts) Stock $2000
Debtors $2000
Creditors $ 1000
During this period: $
Receipts from debtors
Cash Sales
Payment to creditors
Payment to Rent
At 30 June 19-2: Debtors $1000
Creditors $1000
Mark-up 20%
Accrued at 30 June 19-2 $200
Prepare final accounts for the year ended 30 June 19-2.

24. Trading and profit and loss account for the year ended 30 June 19-2
$ $
Sales (Working 1)
Less: COGS
Opening stock
Add: Purchase (Working 2)
6000
Less: closing stock
5000
Gross profit (Working 3)
Less: Expenses
Rent ( )
Net Profit

25. Sales = Cash Sales + Credit Sales = 1000 + 5000 = $6000
Working 1
Total Debtors
Bal b/d
Cash
Sales (bal. fig.)
Bal c/d
7000
7000
Sales = Cash Sales + Credit Sales =
= $6000
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26. Sales = Cash Purchases + Credit Purchases = 0 + 4000 = $4000
Working 2
Total Creditors
Cash
Bal b/d
Bal c/d
Purchase (bal.fig.)
5000
5000
Sales = Cash Purchases + Credit Purchases =
= $4000
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27. Mark-up  Margin 20  20 100+20 Sales = Cost + Profit 100
Working 3
Mark-up  Margin
 20
Sales = Cost + Profit
6000 = x * 20/120
6000 = x
x = 5000
100+20
100
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28. Further Example

29. Stock loss Stock loss (e.g. $1000) without insurance claim
Dr. Profit and loss $1000
Cr. Trading $1000
Stock loss (e.g. $1000) with insurance claim (e.g. $800)
Dr. Bank $800
Dr Profit and loss $200
Cr Trading $1000
(net loss)

30. Balance Sheet at 31 June 19-1 (extracts)
Stock $23750
Debtors $16000
Creditors $11520
During this period: $
Receipts from debtors
Cash Sales
Payment to creditors
Payment to expenses
At 30 June 19-2: Debtors $18780
Creditors $14210
The firm achieves a mark-up of 25% on all cost.
The warehouse has burned down and all the stock was destroyed.
The insurance company gives $15000 for compensation for stock loss.

31. Trading and Profit for the year ended 30 June 19-2
$ $
Sales ( )
Less: COGS
Opening stock
Add: Purchase ( )
86070
Less: Fire loss (21270) [2]
Gross profit (81000 * 25/125) [1]
Less: Expenses
Expenses
Fire loss ( )
Net Profit
[3]