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INCOMPLETE RECORDS

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).
So how can the financial
statements be prepared if the
bookkeeping records are
inadequate or incomplete?
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
Construction of opening & closing
balance sheets or capital

Give me four reasons why capital might change.


1. Introduction of extra capital
2. Withdrawal of capital
3. Profit earned by the business
4. Loss suffered by the business
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?
Opening capital 2,000
Profit (must be) 6,500
Closing capital 8,500
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of capital introduced and withdrawn during the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?
Opening capital 16,000
Capital introduced 4,000
Withdrawals - 8,000
12,000
Profit (must be) 18,000

Closing capital 30,000


Activity 3
The opening capital of Ivor Pain at 1 Jan 2005 was
£32,000. During the year he withdrew £1,000 per month.
At 31 December 2005 the capital figure was £18,000.
How much profit or loss has been earned or suffered
during the year?
Opening capital 32,000
Withdrawals -12,000
20,000
Loss (must be) - 2,000
Closing capital 18,000
MCQ December 2005: 1
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
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?
FIXED ASSETS + CURRENT ASSETS – LT LIABILITIES – CURRENT
LIABILITIES

What is the accounting equation?

ASSETS – LIABILITIES = CAPITAL + PROFIT - DRAWINGS


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
Draw up a Statement of Affairs at each balance sheet
date.
December 2004 December 2005
£ £ £ £
Van 2,000 1,600
Fixtures 1,400 1,260
3,400 2,860
Stock 1,700 1,980
Debtors 1,900 2,880
Bank 2,200 3,400
Cash 200 400
6,000 8,660
Creditors - 400 - 600
5,600 8,060
Loan -1,200 - 800
7,800 10,120

Capital 7,800 7,800


Profit 4,120
Drawings -1,800
7,800 10,120
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.
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
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?
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
Construction of sales and purchase
figures….usually done via control
accounts
Construct a control account
Control accounts essentially contain 4 items..
1. Opening debtors
2. Closing debtors
3. Credit sales
4. Receipts from debtors

If we know 3 items , we can calculate the


fourth!!
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
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
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
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?
1. C.O.S is 80% of £100 = £80
2. £20 + purchases? - £25 = £80
3. Purchases = £85
Question 1
Illustration

Given that on January 1st 2008, AFRICEL UGANDA


2015won a prize from Warid Telecom (U) Ltd and
started business as a retailer in second hand women
garments. At that date he purchased shop premises
worth Ugandan shillings 14,000,000 and paid Ug.shs
2,000,000 for interior fittings. He also paid Ug.shs.
4,000,000 into his bank account.
On 31st December 2009, he realized the
need for a comprehensive income figure for
the two years he had been in business, but
his records were completely inadequate. At
this date the assets he possessed in addition
to the premises and fittings were;
Cash at bank 2,500,000

Motor Vehicle 8,000,000

Receivables 1,040,000

Inventory 6,000,000
Accounts payable were 1,400,000 and had borrowed Ug.shs.
10,000,000 from a friend. Interest accrued on the loan amount to
Ug.shs. 200,000. AFRICELL UGANDA 2015estimated that he was
withdrawing Ug.shs. 300,000 per month from the business.

Required
Determine the net profit for the two years valuing the non-
current assets at cost less depreciation as given below;
Premises at 2% p.a, Fittings at 5% p.a and on motor vehicle at
20% p.a.
 Guidelines for preparation of
financial statements from incomplete
records
In order to prepare financial statements from incomplete
records, the following guidelines will assist you to
appreciate how to determine the missing information. But
when applying these guidelines, it should be noted that
the level of incompleteness might differ from one
organization to another and the guidelines should be
oriented to suite a specific situation. That is, the approach
to be adopted is not fully dependent on the guidelines but
rather dictated by the available or missing data.
1. Draw up a statement of financial position to
determine the opening capital. The statement of
financial position is a balance sheet that takes into
account the assets and liabilities at start of the
accounting period.
Illustration
Brian had the following Assets and Liabilities on 1st
January 2009
Premises 30,000
Machinery 120,000
Inventory 80,000
Receivables 65,000
Payables 50,000
Prepayments 9,000
Accrued Expenses 6,000
Cash at Bank 120,000
Cash at Hand 45,000
Motor Vehicles 140,000
Bills Payable 56,000
Furniture 70,000

Required
Compute Brian’s capital as at 1st January 2009
Illustration3
Given the following information, determine the credit
sales

Accounts receivables 1st January 2009 140,000


Bad Debts written off 3,400
Cash received from customers 780,000
Returns in wards 5,700
Discounts allowed 15,000
Accounts receivable at 31st December 2009
130,000
Illustration4
Determine credit purchases using Accounts payable control Account.
Given the following information, determine the credit purchases

Accounts payable 1st January 200980,000


Discounts received 14,000
Returns out wards 12,500
Bank payment to suppliers 500,000
Accounts payable 31st December 2009 75,000
Note
The cash sales and cash purchases will have been recorded when
preparing the cash book . Once the credit sales and purchases have
been established they are added to the cash sales and cash purchases
to determine total sales and purchases respectively.

Alternatively sales and purchases can be determined using the profit


margin and Mark up.
Margin represents gross profit presented as a percentage of sales
whereas a markup is gross profit as a percentage of cost of sales.
Margin = Gross Profit/ Sales
Markup = Gross Profit/ Cost of sales

Gross Profit = Sales – Cost of sales


Cost of sales = Opening inventory + Purchases – Closing inventory
However, Gross profit = Margin X Sales or Mark up X Cost of sales

Therefore Purchases = Cost of sales – Opening inventory + Closing inventory

Alternatively
Gross profit = Sales – Cost of sales
Given that margin = profit as a percentage of sales
Alternatively
If the margin = X%
Then X% Sales = Sales – Cost of sales
Sales – X% Sales = Cost of Sales
(1-X %) Sales = Cost of Sales
Sales = Cost of sales
1–X%

Note: Cost of Sales = Opening Inventory + Purchases – Closing Inventory


Illustration
Given the following information below, determine the sales
Opening inventory 200,000
Accounts Payable 1st January 2009 300,000
Payments to suppliers during the year 900,000
Accounts payable 31st December 2009 200,000
Closing Inventory 100,000
Profit Margin 10%
Solution
Gross Profit = Sales – Cost of Sales
Given that the profit margin = 10%
10% Sales = Sales – Cost of Sales
Sales – 10% sales = Cost of sales
(1-10%) Sales = Cost of sales
Sales = Cost of sales
1-10%
Where cost of sales = Opening Inventory + Purchases – Closing Inventory
= 200,000 + Purchases – 100,000
= 200,000 + 800,000 (W1) =1,000,000
=1,000,000-100,000
= 900,000
Sales = 900,000 = 900,000/0.9 = 1,000,000
1-0.1
Thank u for attending .
Try as many questions as u can because practice makes perfect.