Chapter 1

Incomplete
records

Objectives

Understand and apply

techniques used in
incomplete record situations

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 Contents

The
Credit sales Purchases
accounting
and trade and trade
and business
receivables payables
equations

Stolen goods
Establishing The cash
or goods
cost of sales book
destroyed

The accounting and business

equations
• Still remember these?
Assets = Liabilities + Capital

and

Close net assets = Open net assets + Capital

introduced + Profit - Drawings

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 The accounting and business
equations
• If the owner pay income from their
personal investment in to the business:
Dr Cash/Bank
Cr Drawings
• Or the owner takes goods/cash for
personal use:
Dr Drawings
Cr Purchases (At cost not sale price)/cash/bank

Credit sales and trade receivables

• The value of sales could be derived from the
opening balance of trade receivables, closing
balance of trade receivables and the payments
received from customer during the period.
Credit sales = Close Trade Receivables + Payments from
Trade Receivables – Open Trade Receivables
• If there are irrecoverable debts during the period
then add in the amount of irrecoverable debts
written off.
• Or simply use the T-account!
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 Purchases and trade payables
• The same approach could be applied to find the
purchase figure

Purchase = Close Trade Payables + Payments to Trade

Payables – Open Trade Payables

• Again! You can also use T-account.

Establishing cost of sales

• When the value of purchase is not know, we
might need to use information on gross profit
percentages.
• Two terms may be given in the exam:
– Mark-up: this is a profit as percentage of cost.
– Gross profit margin: this is the profit as percentage
of sales.

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 Stolen goods or goods destroyed
• The cost of the goods (stolen or destroyed) is
the difference between:
– The COGS; and
– Open Inventory + Purchases – Close Inventory.

Stolen goods or goods destroyed

• Accounting treatment for inventory destroyed
stolen or lost.
• If the lost goods were not insured:
Dr Expense
Cr COGS
• It the lost goods were insured:
Dr Insurance claim account (Receivable)
Cr COGS

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 The cash book
• The construction of a cash book, largely from
bank statements showing receipts and payments
of a business during a given period, is often an
important feature of incomplete records
problems.

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The cash book

• Amounts of receipts or payments need to be
established:
– The amount of cash sales
– The amount of certain expenses in the statement of profit
or loss.
– The amount of withdrawals on account of profit by the
owner.
• Where there appears to be a sizeable volume of
receipts and payments in cash receipts and payments,
then it is helpful to construct a two column cash book
with one column for cash receipts and payments, and
one column for money paid into and out of the
business bank account.
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 The cash book
• In order to determine closing balance for cash in
bank
Open balance of cash X
book
Add: Cash receipts X
banked
Less: Payment from bank (X)
account
Close balance of cash X
book
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The cash book

• In order to determine volume of cash sales
Cash receipts banked X
Add: expenses and X
withdrawals in cash
Add: stolen cash (if any) X
Less: Opening balance of (X)
cash in hand
Cash sales X

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