Incomplete Records Flashcards
Positive impacts of double entry system
Fewer errors
More accurate
More information
Easier to prepare final accounts
Reduce fraud and theft
Evidence for loans
Negative impacts of double entry system
Don’t know how to do it
Cost
Time
What’s the accounting equation
A = C + L
What is a statement of affairs
A balance sheet that lists the assets and liabilities
E.g ASSETS
Vehicles
Buildings
LIABILITIES
Trade receivables
4 techniques used to find missing figures
Cash book
Control accounts
Ratios
Adjustments e.g accruals + prepayments
4 items in control accounts used for financial statements
Purchases
Sales
Trade receivables
Trade payables
Gross profit mark up equation
Gross profit / cost of sales x 100
Gross profit margin equation
Gross profit / revenue x 100
Where do accruals and prepayments go in the SoFP
Accrued exp CL
Accrued inc CA
Prepaid exp CA
Prepaid inc CL
What is meant by incomplete records?
Don’t have a set of double entry books
Why might incomplete records exist?
Don’t have the knowledge or time
Don’t see the need - cash business or too small
Benefits of double entry?
Detects fraud
Easier to compose financial statements
Improves decision making
Reduces errors
What technique do you use for incomplete records?
Statement of affairs
Cash book
Ratios
Control accounts
Financial statements
How can SoA be used to calculate profit?
Calculate opening and closing capital
Adjust for drawings and capital introduced
Difference is profit or loss
What is a statement of Affairs?
List of assets and liabilities
Can be used to calculate capital using A = C + L
How can stolen cash be calculated using CB?
Draw up cash book
Make sure values produce correct balance
Other than calculating stolen cash why is a CB useful for incomplete records?
Provides values to help calculate expense
Provides bank and cash balances
how are control accounts used to calculate sales and purchases?
Work back to find credit sales or purchases and then add cash sales or purchases.
What is likely to go into a RLCA?
Balances
Credit sales
Receipts from customers
Bad debts
Discounts allowed
Sales returns
What is likely to go into a PLCA?
Balances
Credit purchases
Payments to suppliers
Discounts received
Purchase returns
If GP margin is 30% what % do we say Revenue and cost of sales are?
Revenue 100%
Cost of sales 70%
If GP mark-up is 20% what % do we say Revenue and cost of sales are?
Revenue 120%
Cost of sales 100%
If stocktake is done late and we adjust for sales, why do we not use the sales value?
Prudence concept
Goods in stock are valued at the lower of cost or NRV
Sales price would be the higher value?
What are the formulae for rate of inventory turnover?
Cost of sales/average inventory or average inventory/cost of sales x 365
RoIT is 5 times Opening Inv is £25,000 CoS is £150,000, what is closing inventory?
£35,000
