Compiled by C Munodawafa 0773821392
INCOMPLETE RECORDS
Calculation of net profit where there is insufficient information.
-statement of affairs is a list of assets and liabilities at a given date or time.
-if we substitute in the accounting equation which states that ASSETS – LIABILITIES =CAPITAL
Profit increases capital
Opening Capital + Additional Capital +Net profit - Drawings =Closing Capital
Therefore : Net Profit = Closing Capital-Opening Capital-Additional Capital + Drawings
-opening and closing capital are calculated from the statement of affairs
-Drawings and additional capital are given from the additional information
-Additional capital are private resources injected into the business.
-Drawings are business resources taken by the owner for private use (assets, motor vehicle)
STEPS IN PREPERATION OF FINAL ACCOUNTS OF INCOMPLETE RECORDS
1 Calculate opening capital using the statement of affairs( Assets – liabilities = capital)
2 Prepare receipts and payments account (bank and cash account)
Cash/Bank account
Balance b/d XX Payments XX
Receipts XX Balance c/d XX
XXX XXX
treat any expenditure which is not accounted for in the receipts and payment account as
drawings
3 calculate sales and purchases using total(control) accounts ,markup ,margin and the
relationship between the two
Sales control account
Balance b/d xx Cash and cheques received xx
Credit sales(balancing figure) xx Discount allowed xx
Bad debts xx
Returns inwards xx
Balance c/d xx
xx xx
Total sales = cash sales + credit sales(from above )
Purchases Control account
Payments to suppliers xx Balance c/d xx
Discounts received xx credit Purchases balancing figure xx
Balance c/d xx
xx xxx
Total purchases = cash purchases + credit purchases
Markup = Gross profitType equation here . margin = Gross Profit/Sales
Sales –cost of sales = Gross Profit
Sales =Gross Profit + cost of sales
Cost of sales =Sales – Gross Profit
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Relationship between markup and margin
When markup= GP/COS therefore Margin =GP/COS+GP (sales)
When Margin= GP/Sales therefore Markup=GP/Sales-GP (COS)
Therefore when markup=a/b therefore Margin=a/b +a
When Margin =a/b +a therefore mark up = a/b-a
Mark up = whatever is added to the cost to arrive at selling price
4 Prepare the T account for Expenses, Incomes and Assets(All items which appear in both the
receipts and payments account and the statement of affairs needs a T account)
Expenses account
other receivables(Prepaid b/d) xx Owing b/d xx
Bank xx To income statement xx
Owing c/d xx Prepaid c/d xx
xxx Xxx
Income account
Owing b/d xx Prepaid b/d xx
Income statement(balancing figure) xx Bank xx
Prepaid c/d xx Owing c/d xx
xxx Xxx
Asset account(at NBV)
Balance b/d xx Disposal xx
Purchases at cost xx Depn(Balancing figure) xx
Balance c/d xx Balance c/d xx
xxx xxx
5 Prepare the Income Statement and the Statement of Financial Position.
