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Pages From CH 17 Incomplete Records

Chapter 17 discusses the challenges faced by small business owners with incomplete accounting records and the methods to derive missing financial information. It explains the accounting equation and how to calculate capital using opening and closing balances of assets and liabilities. An example involving a business named Albert illustrates the application of these concepts to determine closing capital.

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40 views1 page

Pages From CH 17 Incomplete Records

Chapter 17 discusses the challenges faced by small business owners with incomplete accounting records and the methods to derive missing financial information. It explains the accounting equation and how to calculate capital using opening and closing balances of assets and liabilities. An example involving a business named Albert illustrates the application of these concepts to determine closing capital.

Uploaded by

Phy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 17: Incomplete Records

I. INTRODUCTION
Incomplete records problems involve with individuals running small businesses such as a
newsagent or greengrocer that not keep all of the accounting records we have studied or
have a detailed understanding of double entry bookkeeping.

If a business does not have a full set of accounting records, the preparation of the statement
of profit or loss and statement of financial position may require some figures to be
ascertained from other records and information.

II. Accounting equation to derive missing information


If given a list of opening and closing balances for assets and liabilities, you can determine
opening and closing capital.

This is done from the Accounting Equation:

Assets – Liabilities = Capital (Net assets)

Opening capital and closing capital are also linked by the following equation:

Closing capital = Opening capital + Capital introduce + Profits - Drawings

This can be rearranged as:

Closing capital - Opening capital = Capital introduce + Profits - Drawings

“Closing Net Assets minus Opening Net Assets” is often referred to as the “Change in Net Assets”.

Change in Net Assets = Capital introduce + Profits - Drawings

What figure you have to determine and which equation(s) you use will be dependent on the
information provided. But you do need to know and understand these relationships. You will
be given sufficient information such that there is only one unknown.

1 Albert does not keep full accounting records. His last accounts show that his
capital balance was $42,890. At the year-end he calculated that his assets and
liabilities were:
$
Non-current assets 41,700
Inventory 9,860
Receivables 7,695
Payables 4,174
Bank overdraft 5,537
On reviewing his calculations, you note that he not includes $258 of unpaid
invoices for expenses.

What is the value of Albert's closing capital?

Closing Capital = Total Assets - Total Liabilities

Total assets (non-current assets, inventory, and receivables) =

Total liabilities (payables, bank overdraft, and the unpaid invoices) =

Tutor: Kim Mara | 1


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