Accounts from Incomplete Records PDF

1 Chapter -11 Accounts from incomplete records An account system which is not based on double entry is known as incomplete accounting system or single entry system. It is incomplete because in this system only personal as...

1 Chapter -11 Accounts from incomplete records An account system which is not based on double entry is known as incomplete accounting system or single entry system. It is incomplete because in this system only personal aspect of each transaction are recorded and nominal and real accounts are completely ignored. So this system is incomplete, inaccurate, unsystematic, and incomplete. Reason for incompleteness 1- This system is suitable to small concerns which have mainly cash transaction. 2- This system is economical since lesser numbers of books are maintained. 3- Lack of knowledge of double entry system. 4- Intentional omission to take advantage of taxation. Limitations 1- Arithmetical accuracy of books of accounts cannot be proved. 2- It is difficult to determine the exact profit or loss. 3- The value of assets and liabilities are not reliable. 4- It increases the chance of error and fraud. 5- It is not accepted as reliable by It Department, banks and government Ascertainment of profit or loss Under single entry system the profit or loss can be ascertained by following ways. 1- Statement of affairs method 2- Conversion method Ascertainment of profit or loss by preparing the statement of affairs Under this method profit or loss can be ascertained by comparing the capital at the beginning and at the end of the financial period. For this purpose two statements are prepared. a. Statement of affairs It is a statement prepared by presenting the assets on one side and liabilities on the other side as in the case of the balance sheet. The difference between the two sides is known as owner’s equity or capital. The difference between statement of affairs and balance sheet are in statement of affairs balances of various assets and liabilities are not derived from ledger account. Statement of affairs is prepared to find out capital where as a balance sheet is prepared to disclose the financial position. Accounts from incomplete records study notes prepared by Jaison James HSST (Jr) SMHSS Koodathai  2 b. statement of profit or loss. The statement prepared to ascertain the profit or loss by comparing the opening capital and closing capital is called statement of profit or loss. The capital at the end of the year exceeds the capital at the beginning is treated as profit. Capital at the beginning is more than the capital at the end is loss Format of statement of profit or loss Particulars Amount Capital at the end of the year xxxx Add- drawings during the year xxx Less- Additional Capital introduced during the year xxx Adjusted Capital at the end of the year xxxx Less-Capital at the beginning of the year xxx Profit or loss made during the year xxxx Difference between statement of affairs and Balance sheet Basis of difference Statement of affairs Balance Sheet Reliability It is less reliable as it is prepared It is more reliable as it is prepared from incomplete records. from double entry records Objective The objective of preparing The objective of preparing balance statement of affairs is to find out sheet is to show the true financial the amount of capital position. Omission Omission of assets or liabilities Omission of assets and liabilities cannot be discovered easily can be easily discovered Preparation of profit and loss account and balance sheet under conversion method The method of preparing the financial statement by converting the accounts under single entry to double entry is called conversion method. Under this method final accounts are to be prepared directly with whatever information available. If such information is inadequate or missing it should be ascertained by preparing relevant ledger accounts. The most common items that are missing and have to be worked out are - opening capital - Credit purchase - Credit sale - Bills payable accepted Accounts from incomplete records study notes prepared by Jaison James HSST (Jr) SMHSS Koodathai  3 - Bills receivable received - Payments to creditors - Payments to debtors - Any other cash / bank related items Ascertaining credit purchase By preparing total creditors account, credit purchase or any missing figure related to creditors can be ascertained as the balancing figure Total Creditors Account Date Particulars J.F Amount Date Particulars J.F Amount Cash xxx Balance b/d xxx Bills payable xxx Bank (Cheque xxx Discount Received xxx Dishonoured) Purchase Return xxx Bills Payable (Bills xxx Balance c/d xxx Dishonoured) Credit Purchase (b/f) xxx xxxxx xxxxx Ascertainment of credit sales For ascertaining the amount of credit sales the debtors account should be prepared. The available information should first be entered in this account. The balancing figure will then be the missing figure. Total Debtors Account Date Particulars J.F Amount Date Particulars J.F Amount Balance b/d xxx Cash xxx Bills Receivable (bill xxx Bank xxx dishonoured) Discount allowed xxx Bank ( Cheque xxx Bad debt xxx dishonoured) Sales Return xxx Credit sale (b/f) xxx Bills Receivable xxx Balance c/d xxx xxxx xxxx Accounts from incomplete records study notes prepared by Jaison James HSST (Jr) SMHSS Koodathai  4 Ascertainment of Bills receivable and Bills Payable A bills receivable account and bills payable account are prepared to find out the missing item relating to bills. Total Bills Receivable Account Date Particulars J.F Amount Date Particulars J.F Amount Balance b/d xxx Bank xxx Sundry debtors (b/f) xxx Sundry debtors (bill xxx (bills received) dishonoured) Balance c/d xxx xxxx xxxx Total Bills Payable Account Date Particulars J.F Amount Date Particulars J.F Amount Bank xxx Balance b/d xxx Sundry Creditors xxx Sundry debtors (b/f) xxx (bills Dishonoured) (bill accepted) Balance c/d xxx xxxx xxxx XXXXXXXXXXXXX Accounts from incomplete records study notes prepared by Jaison James HSST (Jr) SMHSS Koodathai