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Incomplete Records

Incomplete records refer to book keeping that does not make use of a full double entry system. They are records that contain details of their transactions entered once only in a cash book and do not include every transaction. Who are the people who keep incomplete records? They are the small businessmen, retailers, stallholders, sole proprietors and partners in a partnership. Despite the incomplete records, there is still the need to have the profit calculated for income tax to be determined.

Calculation of profit.

Profit can be calculated by deducting the current financial year’s capital from the preceding year’s capital.

$
Year 20X2 capital = 4,500
Year 20X1 capital = 3,000
Net profit
1,500

If drawings of $600 are taken in:

$ $
Year 20X2 capital 4,500
Year 20X1 capital 3,000
Less: Drawings 600 2,400


Net profit 2,100

The above calculation is based on the formula: Opening capital + Profit – Drawings = Closing capital

Applying this formula, the closing capital should be the same as above figure of $4,500.

$
Opening capital 3,000
Profit 2,100

5,100
Less: Drawings 600
Closing capital
4,500

With the following information, we can attempt to draw up the statement of affairs as at 31 December 20X1 bearing in mind that the capital is the difference between the assets and liabilities.

At 31 December 20X1 At 31 December 20X2
$ $
Plant and machinery 2,000 1,800*
Motor vehicles 1,700 1,360*
Stock 1,850 2,100
Debtors 1,950 2,200
Bank 2,100 2,400
Cash 1,100 1,300
Creditors 1,200 1,500
Loan from Money House 1,600 1,100
Drawings 1,900

* After depreciation


Statement of affairs as at 31 December 20X1

$ $
Fixed assets
Plant and machinery 2,000
Motor vehicles 1,700

3,700
Current assets
Stock 1,850
Debtors 1,950
Bank 2,100
Cash 1,100

7,000
Less: Current liabilities
Creditors 1,200 5,800

 



9,500

 


Financed by:
Capital 7,900*
Long-term liabilities:
Loan from Money House 1,600

9,500

*Capital is the balancing figure

We can now go on to preparing the statement of affairs as at 31 December 20X2 as follow:


Statement of affairs as at 31 December 20X2

$ $
Fixed assets
Plant and machinery 1,800
Motor vehicles 1,360

3,160
Current assets
Stock 2,100
Debtors 2,200
Bank 2,400
Cash 1,300

8,000
Less: Current liabilities
Creditors 1,500 6,500


9,660


Financed by:
Capital 7,900
Add: Net profit (A?)

(B?)
Less: Drawings 1,900 (C?)


Long-term liability:
Loan from Money House 1,100

9,660

Using the formula: Opening capital + Profit – Drawings = Closing capital, we can now calculate the net profit.

(C?): 9,660 - 1,100 = 8,560
(B?): 8,560 + 1,900 = 10,460
(A?): 10,460 - 7,900 = 2,560

We can now fill in the figures to see if the balance sheet totals equal.

$ $
Financed by:
Capital 7,900
Add: Net profit 2,560

10,460
Less: Drawings 1,900 8,560

Long-term liability:
Loan from Money House 1,100

9,660

Calculation of drawings

In constructing the cash account, after taking in all the cash receipts and payments and there is still a missing amount which is the amount that makes both sides agree, the missing amount is taken as the figure of drawings.

Cash summary

$ $
Balance b/d 1,530 Banking 3,000
Sales 7,750 Purchases 1,920
Expenses 1,250
Drawings XXX*
Balance c/d 1,610
9,280 9,280

*Drawings XXX = $1,500 – this amount is the balancing figure, that is it makes the totals of both sides agree.

Calculation of receipts from debtors

Just as the credit amount needed to make the totals of the two cash columns in the cash book equal is drawings, the amount needed on the debit side to make the totals of the two cash columns equal to each other is the receipts from debtors. This is provided all the usual credit items on the credit side of the cash book are present and verified. These items are payments for purchases and expenses, and others that include banking, drawings, payments for purchase of assets, etc. There may also be contra entries – debiting bank and crediting cash – in response to transferring cash to the bank account.

Using the above summary, we can fill up the missing amount which is needed to make both sides of the cash book equal, and this amount is the receipts from debtors or sales.

Cash summary

$ $
Balance b/d 1,530 Banking 3,000
Receipts from debtors **** Purchases 1,920
Expenses 1,250
Drawings 1,500
Balance c/d 1,610
9,280 9,280

**** is the receipts from debtors for the financial year. This amount is $7,750 which is the balancing figure.

Where the records of more than one item are missing, say receipts from debtors and drawings are missing, then amount for each of them can only be arrived at by estimating. This is not likely to be very accurate.

Last Updated (Friday, 03 September 2010 20:28)