UITM~incomplete records & single entry (sole trader)

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UITM~incomplete records & single entry (sole trader)

  1. 1. Prepared by: NAME: PN NURSHAMIMI BINTI SABLI ROOM: L2 60 TEL NO: 09-460 2445 / 013 2226491 EMAIL: nurshamimi@pahang.uitm.edu.my INCOMPLETE RECORDS & SINGLE ENTRY (SOLE TRADER)
  2. 2. LEARNING OUTCOMES  Differences between single entry and Incomplete records  Identify the weaknesses of incomplete records.  Determine profit using the comparison method and analysis method.  The use of mark-up and margin to ascertain profit or loss  Prepare a statement of affairs.  Preparation of the Financial Statements
  3. 3. INTRODUCTION  Incomplete records normally happen to small businesses – they have accounting records but do not maintain according to double entry principles.  This is known as single entry system and results to incomplete records  Incomplete records can happen due to:  Keeping only certain books of accounts (eg. Cash book & cheque butts) to record money received and paid  Even if there is complete set of books, some of the records may be lost, destroyed or misplaced
  4. 4. WEAKNESSES OF INCOMPLETE RECORDS 1 • Profit or loss is difficult to be ascertained when preparing the normal income statement – insufficient info. on revenues and expenses 2 • Difficult to determine current financial position as a result of incomplete info. on assets and liabilities
  5. 5. METHODS TO DETERMINE PROFITS FROM INCOMPLETE RECORDS COMPARISON METHOD ANALYSIS METHOD •Quick method to determine ‘estimated’ profit without preparing income statement •Used when very limited or no records available (only have estimates of assets & liability balances) •Profit/(losses) = owner’s equity at the end – owner’s equity at the beginning •Increase in OE – profit; while decrease in OE – losses •To determine OE at the beginning and end of the period:- OE = ASSETS – LIABILITIES •This is done by preparing Statement of Affairs – equivalent to balance sheet / SOFP •Used when info. Available consists of > the estimates of assets and liability balances. •Details of cash receipts and payments may be obtained through cash book but not for sales, purchases, expenses and revenues. Hence, •Need to reconstruct ledger a/c to obtain the missing info. •Then, statement of comprehensive income will be prepared in order to find the net profit
  6. 6. COMPARISON METHOD – STATEMENT OF AFFAIRS  A statement showing an estimated assets and liabilities of business at a particular date (2 statements – 1. for the beginning and 2. for end of period)  Owner’s equity will be the balancing figure between the total assets and liabilities.  After statement of affairs for both period have been prepared, profit or loss for the period is ascertained by preparing Statement of Profit or Loss (Income Statement @ Statement of Comprehensive Income)
  7. 7. STATEMENT OF AFFAIRS Statement of Affairs as at XXX RM RM ASSETS (Both NCA & CA) Land xxx Building xxx Motor vehicle (on MV) xxx Office Equipment (on MV) xxx Cash / Bank xxx A/c Receivable xxx Prepaid Expenses xxx Accrued revenues xxx xxx LIABILITIES (Both NCL & CL) A/c payable xxx Accrued expenses xxx Prepaid revenues xxx Bank overdraft xxx Bank loan xxx xxx CAPITAL / OWNER’S EQUITY xxx
  8. 8. STATEMENT OF PROFIT OR LOSS Mr A Statement of Profit or Loss for the year ended XXX RM Owner’s equity at the end xx Add: Drawings during the year (if any) xx Less: Additional capital (if any) (xx) Adjusted owner’s equity at the end xx Less: Owner’s equity at the beginning (xx) Net profit for the year xx BASIC PRINCIPLE: OE at the end = OE at the beginning +/- Profits/(losses) + Additional Capital - Drawings
  9. 9. ANALYSIS METHOD – RECONSTRUCTION OF LEDGER A/C  Reconstruct:  Trade receivables control a/c – to find credit sales & payment received during the year  Trade payables control a/c – to find credit purchases & payment made during the year  Cash book – to find closing balance, cash sales & purchases, drawings etc.  Expenses & revenue a/c – to find expenses incurred and revenues earned for the year (both charged and recognised in IS)  Non current asset a/c – to find depreciation, acquisition & disposal during the year
  10. 10. RECONSTRUCTION OF LEDGER A/C Trade receivables control a/c Bal b/d xx *Ct sales xx Bank xx Disc allowed xx Bad debts xx R.Inwards xx Bal c/d xx Trade payables control a/c Bank xx Dis rcievd xx R.Outward xx Bal c/d xx Bal b/d xx *Ct purchases xx Cash book Bal b/d xx *Cash sale xx Sale of NCA xx Income Received xx *Cash purchase xx Trade payable xx *Cash drawing xx Expenses paid xx Purchase of NCA xx Bal c/d xx
  11. 11. RECONSTRUCTION OF LEDGER A/C Expenses a/c Prepayment b/d xx Bank xx Accrual c/d xx Accrual b/d xx *IS xx Prepayment c/d xx Revenues a/c Accrual b/d xx *IS xx Prepayment c/d xx Prepayment b/d xx Bank xx Accrual c/d xx NCA a/c (MV/CV) Bal b/d xx Acquisition xx *Depreciation xx Bal c/d xx *Expenses (IS) = prepaid b/d + bank + accrued c/d – prepaid c/d – accrued b/d *Revenues (IS)= prepaid b/d + bank + accrued c/d – prepaid c/d – accrued b/d *If given cost of the assets, construct ledger as usual in topic 3 especially when there is disposal
  12. 12. PROFIT DETERMINATION: MARGIN vs MARK-UP  Helpful to find missing info. relating to sales & purchases when there is > 1 missing info.  MARGIN: gross profit expressed as a % of sales  MARK-UP: gross profit expressed as a % of cost of sales  If gross profit % is the MARGIN, then make SALES = 100%  If gross profit % is the MARK-UP, then make COST OF SALES = 100% Margin = Gross profit / sales x 100% Margin = Gross profit / cost of sales x 100%
  13. 13. PROFIT DETERMINATION: MARGIN vs MARK-UP  Eg. For MARGIN.  A gross profit margin of 25% is made on sales. Cost of sales = RM12,000. Compute gross profit and sales. Sales (RM?) – Cost of Sales (RM12,000) = Gross Profit (RM?) 100% - 75% = 25% Hence, Gross profit = RM12,000 / 75% x 25% = RM4,000 Sales = RM12,000 + RM4,000 = RM16,000
  14. 14. PROFIT DETERMINATION: MARGIN vs MARK-UP  Eg. For MARK-UP.  A gross profit mark-up is 20%. Cost of sales = RM10,000. Compute gross profit and sales. Sales (RM?) – Cost of Sales (RM10,000) = Gross Profit (RM?) 120% - 100% = 20% Hence, Gross profit = RM10,000 / 100% x 20% = RM2,000 Sales = RM10,000 + RM2,000 = RM12,000
  15. 15. FORMAT OF FINAL EXAM QUESTION  Combination of both Comparison and Analysis Method  Preparation of: 1. Statement of Affairs 2. Statement of Comprehensive Income 3. Statement of financial position

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