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Preparation of financial statements using incomplete records

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Preparation of financial statements using incomplete records

  1. 1. PREPARATION OF FINANCIAL STATEMENTS USING INCOMPLETE RECORDS. Introduction of Incomplete Record. Incomplete records problems involve preparing a set of year end accounts for a business which does not have a full set of accounting records. 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 There are four reasons why capital might change. 1. Introduction of extra capital. 2. Withdrawal of capital. 3. Profit earned by the business. 4. Losses suffered by the business. • 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can calculate profit when we have details of the opening and closing capital and have details of capital introduced and withdrawn during the year. Illustration 1 The opening capital of Sameera trade centre at 1 Jan 2014 was Rs.16,000. On 1 July 2014 he introduced further capital of Rs.4,000 and during the year withdrew a total of Rs.8,000. At 31 December 2014 the capital figure was Rs.30,000. How much profit has been earned during the year?
  2. 2. Illustration 2 Thilini 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 2013 and 31 December 2014. Dec 2013 Dec 2014 (Rs.) (Rs.) Van 2,000 1,600 (after depreciation) Machinery 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? 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. Illustration 3 Ruwan does not keep proper accounting records. His bank statements show that his opening bank balance was Rs.100 and his closing bank balance was Rs.400. He knows that his payments to suppliers were Rs.1,200 and he took drawings of Rs.700 (paid by cheque) but he has no idea of his receipts from debtors?
  3. 3. Construction of sales and purchases • 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!! Illustration 4 Mohomad does not keep proper accounting records. He knows that his opening debtors were Rs.500 and his closing debtors were Rs.400. He has already reconstructed his bank account and knows that receipts from debtors were Rs.2,200. He needs to calculate his sales? 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. Illustration 05 Calculate the profit or lost from the following information? Opening capital Rs 2400000. Drawing during the year Rs 200000. Capital introduce Rs 100000. Capital at the end of year Rs 3000000.
  4. 4. Illustration 06 Calculate the closing stock from the following information? Sales Rs 300000. Purchase Rs 250000. Opening stock Rs 25000. Gross profit on sale 20% Illustration 07 Mr.Basheer started his business on 01.01.2012 with the capital Rs 125000. On 01.05.2012 he invested an additional capital amount Rs 50000 and he has taken Rs 20000 from the business for his own purpose. The followings are the assets and liability on 31.12.2012.prepare statements of profit or lost? Cash and bank Rs 30000. Debtors Rs 40000. Stock Rs 160000. Furniture Rs 20000. Creditors Rs 50000.

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