Chapter 2: Incomplete Records Accounting

What are incomplete record
1. Incomplete records is the term used where some aspect of the accouting system is missing
2. When information has been lost due to a disaster, flood or fire, or the lose of information, ledger or computerised data
3. when there is inadequate or missing accounting records, which can concern purchases, sales, payables and receivables
4. There area differences between
  1. Ledger accounts, non-current asset register, the physical on-current assets oin the business
  2. Inventory records, inventory total and the physical inventory held by the business
  3. Businesses cash book and the bank statement given by the bank
  4. Purchase ledger account and the statement received from suppliers
5. The timing difference, so when a good has been ordered by not received, payments have been sent but haven't been recorded yet
Information Available to the Accountant
1. A business will have a cash book which is normally kept as a one entry account, but if it hasn't been kept you usually reconstruct it by using the bank statements but its a time consuming job
2. Places accountant can get information from
  1. Cash book- this is a basic record for any single entry
  2. Banking Details- statements, paying in books, cheque stubs and bank transfers are included in this
  3. Invoices- invoices which area both sent (sales) and received (purchases)
  4. Expenses- from during the year
  5. Lists of account owing suppliers (payables), and trade receivables from customers, from the beginning and end of year
  6. Assets and Liabilities- non-current and current assets, long term and current liabilities, at the beginning and end of year
  7. Non-current assets- brought an sold during the year
3. Information which may not be available
  1. Capital at the beginning of the year
  2. Purchases and sales for the year
  3. Cash book summary for the year
  4. Profit or loss for the year
  5. Drawing for the year
Tools of Accouting
1. Using the tools of accounting to construct the accounts that are required
2. Accounting tools that maybe required
  1. The use of an opening trial balance, or statement of assets and liabilities
  2. Construction of Cash account or bank account
  3. The use of control account
    1. Sales ledger control
    2. Purchase ledger control
    3. VAT control account
  4. Prep of financial statements
  5. Accounting equation
  6. Gross profit mark- up and margin
Opening Capital
1. This is needed for the statement of financial position
2. In the situation of incomplete records, the opening capital maybe known, if not we will use the accounting equation, assets- liabilities capital
3. If the bank balance is over drafted it becomes a liability
Cash Book Summary
1. Enables us to find out the cash and bank balance at the year end
2. In practise the bank statements could be used to produce a summary of bank receipts and payments
3. If the bank balance is over drawn credit it
4. At the end of the summary, the credit balance brought down is an overdraft
Purchases and Sales
1. Purchases for the year= payments - trade payables (at beginning of year) + trade payables (end of year)
2. Sales for the year= receipts - trade receivables (beginning of year) + trade receivables (end of year)
3. Remember to include, returns and discount received or allowed, irrecoverable debts (sales) contra transactions (set off between sales ledger and purchase ledger), goods taken for owners use
Purchases and Sales Summary
1. For the calculations or control account, 4 pieces of information is required
  1. Opening Balance
  2. Closing Balance
  3. Bank and cash payments, receipts for the year
  4. Purchase or sales of the year
2. Providing that any three are known you can calculate the other
Statement of profit or loss
1. Expenses for the year
  1. Bank and cash payments - accruals (beginning of year) + prepayments + accruals at end of year - prepayments at end of year
The use of Gross Profit Mark- Up and Margin
1. It is often necessary to use accounting ratios, percentage/ fractions in prep for financial statements
2. Two main percentages/ fractions
  1. Gross profit mark-up
  2. Gross profit margin (gross sales margin)
3. Business establish its selling price by reference to either the mark up or margin, the difference between the two are
  1. Mark- up, profit percentage or fraction added to buying or cost price
  2. Margin, profit percentage or fraction based on the selling price

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