ACCA 1.1 INCOMPLETE RECORDS

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ACCA 1.1INCOMPLETE RECORDS
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Not all businesses keep a proper set of
accounting records?
Small businesses, such as shopkeepers, market
stall holders, hairdressers, landscape gardeners,
do not always have the knowledge, expertise and
time to keep a complete set of accounting records.
However, these businesses will need to have
financial statements prepared annually (for tax
purposes if nothing else).
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So how can the financial statements be prepared
if the bookkeeping records are inadequate or
incomplete?
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Four basic techniques used for incomplete records

1. Construction of opening closing balance sheets
   or capital
2. Construction of a cash and / or bank summary
3. Construction of sales and purchase
   figures.usually done via control accounts
4. Use of gross / net profit percentage

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• Construction of opening closing balance sheets
  or capital

Give me four reasons why capital might
change. 1. 2. 3. 4.
Introduction of extra capital
Withdrawal of capital
Profit earned by the business
Loss suffered by the business
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PROFIT OR LOSS THE INCREASE OR DECREASE IN
CAPITAL.
We can calculate profit when we have details of
the opening and closing capital.
Activity 1 The opening capital of Edna Clouds at
1 Jan 2005 was 2,000. At 31 December 2005 the
capital figure was 8,500. How much profit has
been earned during the year?
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Opening capital 2,000 Closing capital 8,500
Profit (must be) 6,500
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We can calculate profit when we have details of
the opening and closing capital and have details
of capital introduced and withdrawn during the
year.
Activity 2 The opening capital of Ivy Cladwall at
1 Jan 2005 was 16,000. On 1 July 2005 she
introduced further capital of 4,000 and during
the year withdrew a total of 8,000. At 31
December 2005 the capital figure was 30,000.
How much profit has been earned during the year?
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Opening capital 16,000 Capital introduced
4,000 Withdrawals - 8,000
12,000 Closing capital 30,000
Profit (must be) 18,000
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Activity 3 The opening capital of Ivor Pain at 1
Jan 2005 was 32,000. During the year he
withdrew 1,000 a month. At 31 December 2005 the
capital figure was 18,000. How much profit or
loss has been earned or suffered during the year?
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Opening capital 32,000 Withdrawals -12,000
20,000 Closing capital 18,000
Loss (must be) - 2,000
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• MCQ December 2005 1

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MCQ December 2005 1
Detail Detail
Drawings 68000 net assets (capital) b/d 186000
Drawings 20000 Capital introduced 50000
net assets (capital) c/d 274000 Profit 126000
362000 362000


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PROFIT OR LOSS WHEN THE NET ASSETS AT THE
BEGINNING AND END OF THE YEAR ARE KNOWN.
Activity 4 What do we mean by net assets? What
is the accounting equation?
FIXED ASSETS CURRENT ASSETS LT LIABILITIES
CURRENT LIABILITIES
ASSETS LIABILITIES CAPITAL PROFIT - DRAWINGS
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Activity 5 Eileen Dover has not kept proper
bookkeeping records but has kept notes in diary
form of the transactions of her business. She is
able to give you details of her assets and
liabilities as at 31 December 2004 and 31
December 2005 Dec 2004 Dec 2005

Van 2,000 1,600 (after depreciation)
Fixtures 1,400 1,260 (after depreciation)
Stock 1,700 1,980
Debtors 1,900 2,880 Bank 2,200 3,400
Cash 200 400 Creditors 400
600 Loan 1,200 800
Drawings 1,800
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Draw up a Statement of Affairs at each balance
sheet date. December 2004 December 2005
Van
Fixtures Stock
Debtors Bank
Cash
Creditors Loan Capital
Profit Drawings
2,000
1,600
1,400
1,260
3,400
2,860
1,700
1,980
1,900
2,880
2,200
3,400
200
400
6,000
8,660
- 600
- 400
5,600
8,060
-1,200
- 800
7,800
10,120
7,800
7,800
4,120
-1,800
7,800
10,120
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This method of calculating profit is
unsatisfactory and should only be done in
exceptional circumstances. A full set of
financial statements should be drawn up from the
available information.
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Construction of a cash or bank summary

• If we know the opening and closing bank
• account balances we might be able to
• calculate a missing figure for sales receipts
• or purchases

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Construction of a cash or bank summary example

• Donald does not keep proper accounting
• records. His bank statements show that his
• opening bank balance was 100 and his
• closing bank balance was 400.
• He knows that his payments to suppliers were
• 1,200 and he took drawings of 700 (paid by
• cheque) but he has no idea of his receipts
• from debtors?

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Construction of an opening cash or bank summary
example
T Account
Date Detail Date Detail
Bal b/d 100 Creditors 1200
Debtors 2200 Drawings 700
Bal c/d 400
2300 2300


We now know our receipts from debtors, which
might be the sales figure Or could help us
calculate the sales figure
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Construction of sales and purchases
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Construction of sales and purchase
figures.usually done via control accounts

• Construct a control account
• Control accounts essentially contain 4 items..
• Opening debtors
• Closing debtors
• Credit sales
• Receipts from debtors

If we know 3 items , we can calculate the fourth!!
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Construction of sales and purchases

• Donald does not keep proper accounting
• records. He knows that his
• opening debtors were 500 and his
• closing debtors were 400.
• He has already reconstructed his bank
• account and knows that receipts from
• debtors were 2,200. He needs to calculate his
• sales

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Construction of debtors control account to
calculate sales
Debtors control
Detail Detail
Bal b/d 500 Bank receipts 2200
Sales 2100
Bal c/d 400
2600 2600


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June 2004 MCQs 9 10
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Use of gross / net profit percentage

• Missing figures can also be calculated using
  gross or net profit percentages
• If we know that gross profit is 20 of sales, we
  can calculate the cost of sales if we know our
  sales figure.
• If we know cost of sales and our opening and
  closing stock, we can easily calculate purchases

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Use of gross / net profit percentage example

• Duck has sales of 100. He knows that his gross
  profit percentage is 20 of sales.
• His opening stock was 20 and his closing stock
  was 25. What is Ducks purchases?
• C.O.S is 80 of 100 80
• 20 purchases? - 25 80
• Purchases 85

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Question 1