Chapter 22&23

Question 1

What are incomplete records?

Answer 1

• Incomplete records is a general term given to a situation where the transactions of an organisation have not been recorded in double entry form and thus there is not a full set of records of the enterprise’s transactions.
• It is not uncommon for sole traders to have incomplete records since it is often too expensive for them to maintain a full set of records, and these may be of limited usefulness to the owner.

Question 2

What are forms of incomplete
records

Answer 2

1. Incomplete records of revenue income and expenditure
2. Single entry
3. Incomplete single entry

Question 3

What are Incomplete records of
revenue income and expenditure?

Answer 3

• This refers to situations where there are no basic documents or records of revenue income and expenditure, or when these records are inadequate.
• This situation usually arises where the books and documents have been accidentally destroyed (e.g..
  in a fire) or the owner failed to keep any records of the income and/or expenses.
• It is therefore not possible to construct a statement of profit or loss.
• To ascertain the profit for a given period it is necessary to prepare a SoFP at the start and end of the relevant period.
• The profit is then computed from the change in the value of net assets/capital over the period.
• This is an application of the comparative static approach to profit measurement.

Question 4

Structure of incomplete
records

Answer 4

Capital at end of period
- capital at start of period
= increase in capital
-capital introduced during period
+drawings during the period
= Profit for the period

Question 5

What is single entry?

Answer 5

• This refers to where transactions have only been entered in a book of prime entry, usually a cash book, and not in the ledger.
• However, there is usually also documentation relating to the value of non-current assets, inventories, trade
  receivables, trade payables, accruals and
  prepayments, and any loans.
• Thus a statement of profit or loss and a statement of financial position can be prepared from the cash book and supporting documentation relating to assets and liabilities, often using control/total accounts.

Question 6

What is an Incomplete single entry?

Answer 6

• This refers to where there are no books of account but the amount of each type of income and expenditure can be ascertained from the bank statements and/or supporting documents.
• In this case it is necessary to produce a cash book summary from the bank statements, paying-in book and cheque book stubs.
• The final financial statements are usually prepared from this cash book summary and the supporting documentation relating to assets and liabilities.

Question 7

Procedure/steps in preparing final accounts from incomplete single entry records? (Part 1)

Answer 7

1. Prepare a statement of affairs as at the end of the previous year to ascertain the capital.
2. Prepare a cash book summary (from the bank statements) to ascertain the balance at the end of the year and the total
   amounts for each type of income and expenditure.
3. (a) Compute the net credit purchases by preparing a purchase ledger control account.
   (b) Compute the cash and cheque purchases.
   (c) Total purchases = (a) + (b)

Question 8

Procedure/steps in preparing final accounts from incomplete single entry records? (Part 2)

Answer 8

4. (a) Compute the net credit sales by preparing a sales ledger
   control account.
   (b) Compute the cash and cheque sales.
   (c) Total sales = (a) + (b)
5. Compute the charges to the statement of P/L account for expenses with accruals or prepayments by preparing the
   relevant ledger accounts.

Question 9

Procedure/steps in preparing final accounts from incomplete single entry records? (Part 3)

Answer 9

6. Compute the charges/credits to the statement of P/L account in respect of allowances for irrecoverable debts,
   depreciation, sales of non-current assets, etc.
7. Prepare final financial statements remembering to add together any bank and cash expenditure of the same type, and include any new assets acquired, drawings (e.g. goods taken by proprietor) and/or capital introduced.