INCOMPLETE RECORDS

An incomplete record situation signifies an accounting system which falls short of the
double entry. This may be due to lack of records at all or insufficient records that will or
should facilitate the preparation of final accounts.
Reasons for insufficient or incomplete records
i. Managers or owners may not have the skills or expertise to prepare and maintain
accounting records.
ii. It may not be economical for the business to maintain accounting records due to
volume and nature of transactions e.g. small scale businesses- hawkers.
iii. here records have been destroyed !through fire"# stolen or misplaced.
The main problem is how to prepare a full set of final accounts where there are
incomplete records.
e would be need to$
%stablish the cost of purchase and other expenses# auth of sales# accounts payables
and receivables# accruals and prepayments at the year end.
&ocus on the relationship between related accounts.
'ash received and paid.
(ales and accounts receivables
)urchase and accounts payable and inventory
WHAT EXACTLY MIGHT BE INCOMPLETE?
*. +pening balance sheet where you may be given the closing balances of all assets
and liabilities# but there is no closing capital.
2. Trade accoun rece!"a#$e% and cred! %a$e%
'redit sales relate to trade account receivables and cash. If we have a missing
figure of the credit sales# we can derive the figure using the opening balance of
trade account receivables# closing balance of trade account receivables and
payments received from customers during that period.
&. Trade accoun 'a(a#$e% and 'urc)a%e%
e can derive the value of purchases given the opening and closing balances in
the trade account payables account and the amount of cash paid to suppliers.
*. E%a#$!%)!n+ co% o, %a$e%
*
here inventory# sales or purchases is unknown# we shall use the gross profit
margin to come up with the cost of sales figure.
e may also use the trading account to come up with the purchases figure.
-. So$en +ood% or +ood% de%ro(ed
a" e need the cost of goods sold$
b" !+pening inventory , purchases - closing inventory"
If b". a"# then there is a missing amount of goods that was not sold and it is
not in the inventory thus the value or cost of goods destroyed.
.. Ca%)#oo/
0. Accrua$% o, 're'a(1en%
2. Dra3!n+%
E%!1a!on o, !nco1e ,ro1 ne a%%e%
here the available records are so deficient that it is impossible to compile a reasonable
cash summary and estimates of other transactions in the business# then the only approach
would by use of a statement of affairs !a list of balances of assets and liabilities showing
the capital"
The opening and closing state of affairs will be used to derive the profit or loss for the
period by use of the formula$
/et profit0loss1 closing capital- opening capital, drawings- additional capital
1 closing net assets-opening net assets , drawings- additional capital
Assets-liabilities1 /et assets
Ca'!a$ Sec!on o, )e Ba$ance S)ee 4
'apital *
st
!opening" xxx
Additional capital xxx
Additional net profit or loss xxx
2ess drawings !xxx"
'losing capital xxx
H5O 6n7
%.3. M. Taylor has not kept proper bookkeeping records but has the following details$
At 4*
st
5ecember 6778
6
Assets$ van 9:777# fixtures 9*;77# inventory 94777# account receivables 98*77# bank
98;77# and cash 9677
2iabilities$ trade account payables 9*677# loan from <. +gden 94=77
As at 4*
st
5ecember 677=$
Assets$ van after depreciation 9=777# fixtures after depreciation 9*:77# inventory 94;77#
accounts receivable 9:677# bank 9>=77 and cash 9477
2iabilities$ trade accounts payable 9*;77# loan from <. +gden 9677
5rawings$ 9=677
Re8u!red9 hat is the net profit amount for the current period?
To identify the profits you need to come up with the statement of affairs.
NOTE9 closing capital1 net profit or loss, additional capital- drawings.
(tatement of affairs for 6778 !to determine closing capital then which will be our opening
capital for 677="
Trade Accoun% Rece!"a#$e and Cred! Sa$e%
In the case of missing value of credit sales from our records# we use a trade account
receivables account@ the opening and closing balance in the account and the payments
received from the customers.
%.3
TRA5% A''+A/T R%'I%BAC2%
Calance brought down xxx
(ales xxx
xxx
'ash xxx
Calance brought down xxx
xxx
(ales 1 payments from trade accounts receivable xxx
Add$ closing balances !representing sales amount in the current period
for which cash payment has not been received". xxx
2ess$ opening balance of trade account receivables !credit sales in a
previous period" !xxx"
4
The same approach is used to derive figures for cash received from sales# opening
balances and closing balances provided all other information is available.
A receivables ledger control account may also be used$
E:a1'$e 5ecember 677* (%' C Duestion 6
Purc)a%e% and rade accoun 'a(a#$e%
here we have a missing figure for purchases of inventory# we use a trade accounts
payable account@ opening and closing balances in the account and the payments to
suppliers.
TRA5% A''+A/T )AEAC2%( A''+A/T
'ash xxx
Calance carried down xxx
xxx
Calance brought down xxx
)urchases !balancing figure" xxx
Fxx

)urchase1
'ash payments to trade account payables during the period xxx
Add$ closing balance !represents purchases in current period for which payment
has not been made" xxx
less$ opening balance !purchases in previous periods" !xxx"
)urchases during the period xxx
A payables control account can also be used to device a missing purchases figure.
Co% o, %a$e%
'omponents of cost of sales are opening inventory# purchases and closing inventory.
hen the value of purchases is unknown and the value of 'ost of (ales is known# we
may use a trading account to come up with the value of purchases or for any other
components of the cost of sales.
Co% o, Sa$e%
+pening inventory xxx
Add purchases xxx
2ess closing inventory !xxx"
'ost of (ales xxx

8
'ost of sales1 opening inventory , purchases - closing inventory
)urchases1 cost of sales -opening inventory , closing inventory
'losing inventory1 opening inventory , purchases - cost of sales
+pening inventory1 cost of sales - purchases , closing inventory
In some case !depending on the information available"# where sales# purchases or
inventory is the unknown figure@ we may be reGuired to use information on gross profit
percentages.
Gro%% Pro,! 'ercena+e%9
Gross profit margin
3ross profit1 sales- cost of goods sold
(elling price- cost price
hen the gross profit is shown as a loge of sales# the gross profit is known as margin or
gross profit margin.
3ross profit H *77
(ales
Mark-up
hen gross profit is shown as a percentage of cost price or !cost of goods sold" the gross
profit is shown as a mark-up.
That is$ gross profit H *77
'ost of goods sold
E:a1'$e *;H5O<
A. Cill has sales revenue of I;>=77 this year. Je achieves a constant mark-up of 67K on
cost. hat is A. CillLs cost of sales for the period?
3iven that A. Cill wants to reduce his inventory level by >777.:> what will be the value
of his purchases.
So$en Good% or Good% De%ro(ed
hen an unknown Guantity of inventory or goods is lost or stolen# the value of such
goods is gotten by subtracting A from C where
a" is the cost of goods sold
=
b" is the opening inventory of the goods !at cost" plus purchases less closing inventory of
the goods at cost
A C
'ost of goods sold 1 opening inventory, purchases - closing
Inventory
C.A@ then there is an amount of inventory that was purchased and itLs neither in the cost
of goods sold nor in the closing inventory hence must be the value of the cost of the
goods destroyed.
E:a1'$e79;H5O<
MIM is a shoe retail shop. +n *
st
<anuary 67N4# it had inventory which cost I*8:O7.
5uring the : months ended 47
th
<une 67N4# the business made purchases costing
I6*6;87.
(ales during the period eGualed to I47;777.
The cost of sales amounted to I667777.
+n 47
th
<une 67N4# there was a fire in the shop which destroyed most of its inventory !in
the shop". Inventory amounting to I>77 at cost was left undamaged and still fit for sale.
Jow much of the inventory was lost in the fire?
E:a1'$e 29
+n *.*.67N4# MIM shop had inventory costing I*8:O7.
5uring the : months ended 47.7:.67N4# the business made purchases costing I6*6;87.
(ales during the period eGualed I47;777
The shop makes a gross profit of 87K on cost for everything it sells.
+n 47
th
<une 67N4# some of the inventory was destroyed and only inventory valued at
I>77 at cost was left undamaged.
Jow much of the inventory was damaged?
E:a1'$e &9
Titus runs retail shop. +n *
st
<anuary 67N4 his inventory at cost amounted to I=677 and
his trade payables were I88=7.
5uring the year sales amounted to I8=777.
Je has a gross profit margin of 44*04K on everything that he sells.
:
+n 4*
st
5ecember# the entire inventory from the shop was stolen.
Je however knew that he had paid I47777 cash to his suppliers during the year# and that
he had payables due of I>777.
R%DAIR%5$
'alculate the amount of inventory stolen.
)repare a trading account for the period.
ACCO=NTING >OR DESTROYED OR STOLEN OR LOST IN?ENTORY
If the goods are not insured against the loss$
DR$ income and expense account
CR$ trading account
The value or cost of goods lost is charged in the income and expense account part of the
income statement as an expense.
If the goods were insured and at the end of the year the insurance company has not paid
the amount !they are account receivables"
DR$ insurance claim account !receivable account" -current asset
CR$ trading account
hen the claim is paid
DR$ cash
CR$ insurance claim account
If the goods were insured and at the year end the insurance company pays the amount of
the claim
DR$ cash
CR$ trading account
CASH BOO@
Remember that a cash book records all cash receipts and payments to and from the cash
till and also the bank account.
e may therefore have to use a two-column cash book !with cash and bank columns" to
complete the cash book.
>
E.G H5O
In some cases# the information given may reGuire us to calculate figures for sales#
purchases# trade account payables and trade account receivables in order to come up with
the cash amounts for the year.
Accrua$% and Pre'a(1en%
/ormally we get the income statements figure for incomes and expenses from the
balancing figure in the incomeP expenses accounts so long as we have the opening figures
for the accounts and cash received and paid.
Dra3!n+%
Includes cash drawn from the business# money used to pay personal expenses.
If the proprietor pays income into his bank account which has nothing to do with the
business operations eg dividend income from investment in shares !privately owned"# the
amount will be credited to the drawings account.
i.e. DR 'ash aPc
CR 5rawings aPc
If given weekly drawings and the financial accounting records for the whole year then
weekly drawings are multiplied by the number of weeks in the year
i.e e.g drawings per week 1 I :7
total drawings 1 I :7x=6
1 I 4*67
If the Guestion states drawings range between I== and := per week# you cannot average
to I:7 hence drawings is a missing figure to be calculated.
;