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INCOMPLETE RECORDS An incomplete record situation signifies an accounting system which falls short of the double entry.

This may be due to lack of records at all or insufficient records that will or should facilitate the preparation of final accounts. Reasons for insufficient or incomplete records i. Managers or owners may not have the skills or expertise to prepare and maintain accounting records. ii. It may not be economical for the business to maintain accounting records due to volume and nature of transactions e.g. small scale businesses- hawkers. iii.Where records have been destroyed (through fire), stolen or misplaced. The main problem is how to prepare a full set of final accounts where there are incomplete records. We would be need to: Establish the cost of purchase and other expenses, auth of sales, accounts payables and receivables, accruals and prepayments at the year end. Focus on the relationship between related accounts. Cash received and paid. Sales and accounts receivables Purchase and accounts payable and inventory
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WHAT EXACTLY MIGHT BE INCOMPLETE? 1. Opening balance sheet where you may be given the closing balances of all assets and liabilities, but there is no closing capital. 2. Trade account receivables and credit sales Credit sales relate to trade account receivables and cash. If we have a missing figure of the credit sales, we can derive the figure using the opening balance of trade account receivables, closing balance of trade account receivables and payments received from customers during that period. 3. Trade account payables and purchases We can derive the value of purchases given the opening and closing balances in the trade account payables account and the amount of cash paid to suppliers. 4. Establishing cost of sales Where inventory, sales or purchases is unknown, we shall use the gross profit margin to come up with the cost of sales figure. We may also use the trading account to come up with the purchases figure. 5. Stolen goods or goods destroyed a) We need the cost of goods sold: b) (Opening inventory + purchases closing inventory)

If b)> a), then there is a missing amount of goods that was not sold and it is not in the inventory thus the value or cost of goods destroyed. 6. Cashbook 7. Accruals of prepayments 8. Drawings Estimation of income from net assets Where the available records are so deficient that it is impossible to compile a reasonable cash summary and estimates of other transactions in the business, then the only approach would by use of a statement of affairs (a list of balances of assets and liabilities showing the capital) The opening and closing state of affairs will be used to derive the profit or loss for the period by use of the formula: Net profit/loss= closing capital- opening capital+ drawingsadditional capital = closing net assets-opening net assets + drawingsadditional capital Assets-liabilities= Net assets Capital Section of the Balance Sheet Capital 1st (opening) Additional capital Additional net profit or loss xxx xxx xxx

Less drawings Closing capital H/O Qn1

(xxx) xxx

E.G. M. Taylor has not kept proper bookkeeping records but has the following details: At 31st December 2004 Assets: van 6000, fixtures 1800, inventory 3000, account receivables 4100, bank 4800, and cash 200 Liabilities: trade account payables 1200, loan from J. Ogden 3500 As at 31st December 2005: Assets: van after depreciation 5000, fixtures after depreciation 1600, inventory 3800, accounts receivable 6200, bank 7500 and cash 300 Liabilities: trade accounts payable 1800, loan from J. Ogden 200 Drawings: 5200 Required: What is the net profit amount for the current period? To identify the profits you need to come up with the statement of affairs. NOTE: closing capital= net profit or loss+ additional capitaldrawings. Statement of affairs for 2004 (to determine closing capital then which will be our opening capital for 2005)

Trade Accounts Receivable and Credit Sales In the case of missing value of credit sales from our records, we use a trade account receivables account; the opening and closing balance in the account and the payments received from the customers. E.G TRADE ACCOUNT RECIEVABLE Balance brought down xxx Sales xxx xxx Cash xxx Balance brought down xxx xxx

Sales = payments from trade accounts receivable xxx Add: closing balances (representing sales amount in the current period for which cash payment has not been received). xxx Less: opening balance of trade account receivables (credit sales in a

previous period) (xxx) The same approach is used to derive figures for cash received from sales, opening balances and closing balances provided all other information is available. A receivables ledger control account may also be used: Example December 2001 SEC B Question 2 Purchases and trade account payables Where we have a missing figure for purchases of inventory, we use a trade accounts payable account; opening and closing balances in the account and the payments to suppliers. TRADE ACCOUNT PAYABLES ACCOUNT Cash xxx Balance carried down xxx xxx Purchase= Cash payments to trade account payables during the period xxx Add: closing balance (represents purchases in current period for which payment
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Balance brought down xxx Purchases (balancing figure) xxx Xxx

has not been made) xxx less: opening balance (purchases in previous periods) (xxx) Purchases during the period xxx A payables control account can also be used to device a missing purchases figure. Cost of sales Components of cost of sales are opening inventory, purchases and closing inventory. When the value of purchases is unknown and the value of Cost of Sales is known, we may use a trading account to come up with the value of purchases or for any other components of the cost of sales. Cost of Sales Opening inventory Add purchases Less closing inventory Cost of Sales xxx xxx (xxx) xxx

Cost of sales= opening inventory + purchases closing inventory Purchases= cost of sales opening inventory + closing inventory Closing inventory= opening inventory + purchases cost of sales

Opening inventory= cost of sales purchases + closing inventory In some case (depending on the information available), where sales, purchases or inventory is the unknown figure; we may be required to use information on gross profit percentages. Gross Profit percentages: Gross profit margin Gross profit= sales- cost of goods sold Selling price- cost price When the gross profit is shown as a loge of sales, the gross profit is known as margin or gross profit margin. Gross profit 100 Sales Mark-up When gross profit is shown as a percentage of cost price or (cost of goods sold) the gross profit is shown as a mark-up. That is: gross profit Cost of goods sold Example 4(H/O) A. Bill has sales revenue of $87500 this year. He achieves a constant mark-up of 20% on cost. What is A. Bills cost of sales for the period? 100

Given that A. Bill wants to reduce his inventory level by 7000.67 what will be the value of his purchases. Stolen Goods or Goods Destroyed When an unknown quantity of inventory or goods is lost or stolen, the value of such goods is gotten by subtracting A from B where a) is the cost of goods sold b) is the opening inventory of the goods (at cost) plus purchases less closing inventory of the goods at cost A Cost of goods sold purchases closing Inventory B>A; then there is an amount of inventory that was purchased and its neither in the cost of goods sold nor in the closing inventory hence must be the value of the cost of the goods destroyed. Example1:(H/O) KIM is a shoe retail shop. On 1st January 20_3, it had inventory which cost $14690. During the 6 months ended 30th June 20_3, the business made purchases costing $212840. Sales during the period equaled to $308000. The cost of sales amounted to $220000. = B opening inventory+

On 30th June 20_3, there was a fire in the shop which destroyed most of its inventory (in the shop). Inventory amounting to $700 at cost was left undamaged and still fit for sale. How much of the inventory was lost in the fire? Example 2: On 1.1.20_3, KIM shop had inventory costing $14690. During the 6 months ended 30.06.20_3, the business made purchases costing $212840. Sales during the period equaled $308000 The shop makes a gross profit of 40% on cost for everything it sells. On 30th June 20_3, some of the inventory was destroyed and only inventory valued at $700 at cost was left undamaged. How much of the inventory was damaged? Example 3: Titus runs retail shop. On 1st January 20_3 his inventory at cost amounted to $5200 and his trade payables were $4450. During the year sales amounted to $45000. He has a gross profit margin of 331/3% on everything that he sells. On 31st December, the entire inventory from the shop was stolen. He however knew that he had paid $30000 cash to his suppliers during the year, and that he had payables due of $7000. REQUIRED:

Calculate the amount of inventory stolen. Prepare a trading account for the period. ACCOUNTING FOR DESTROYED OR STOLEN OR LOST INVENTORY If the goods are not insured against the loss: DR: income and expense account CR: trading account The value or cost of goods lost is charged in the income and expense account part of the income statement as an expense. If the goods were insured and at the end of the year the insurance company has not paid the amount (they are account receivables) DR: insurance claim account (receivable account) current asset CR: trading account When the claim is paid DR: cash CR: insurance claim account If the goods were insured and at the year end the insurance company pays the amount of the claim DR: cash CR: trading account

CASH BOOK Remember that a cash book records all cash receipts and payments to and from the cash till and also the bank account. We may therefore have to use a two-column cash book (with cash and bank columns) to complete the cash book. E.G H/O In some cases, the information given may require us to calculate figures for sales, purchases, trade account payables and trade account receivables in order to come up with the cash amounts for the year. Accruals and Prepayments Normally we get the income statements figure for incomes and expenses from the balancing figure in the income\ expenses accounts so long as we have the opening figures for the accounts and cash received and paid. Drawings Includes cash drawn from the business, money used to pay personal expenses. If the proprietor pays income into his bank account which has nothing to do with the business operations eg dividend income from investment in shares (privately owned), the amount will be credited to the drawings account. i.e. DR Cash a\c

CR Drawings a\c If given weekly drawings and the financial accounting records for the whole year then weekly drawings are multiplied by the number of weeks in the year i.e e.g drawings per week = $ 60 total drawings = $ 60x52 = $ 3120 If the question states drawings range between $55 and 65 per week, you cannot average to $60 hence drawings is a missing figure to be calculated.