Incomplete records are intended to signify any accounting records which fall short of complete double entry. There are varying degrees of incompleteness and the procedure to be adopted in order to prepare final accounts must depend upon the nature of the records and data available.
Approach to be adopted
In order to prepare a profit and loss account and a balance sheet, the following procedure is recorded:
Construct a statement of the financial position at the beginning of the year. This requires assets and liabilities to be determined.
The values of any fixed assets can be obtained from such details as the trader is able to supply of their cost and the dates upon which they were acquired, provision for depreciation from the date of acquisition to the commencement of the current period being deducted. The trader must provide an estimate of the value of his stock and estimated asset values posted to the debit side. The total of the book debts should be debited to a total debtors account, and the total of the liabilities credited to a total creditors account. The excess of the aggregate of the assets over the liabilities may be taken to represent the amount of traders’ capital at the commencement of the period and should be credited to his capital account.
A carefully analysis should be made of the bank statement, and a cash summary prepared. For this purpose, analysis columns should be prepared for each of the principle headings of receipts and payments.
Ascertain the amounts of any cash taking which have not been paid into the bank, but have been used by the trader for the payment of business expenses, goods purchased for cash and personal expenses. An estimate should also be obtained of the value of any stock which may have been withdrawn by the trader for his own personal use or for that of his family.
On completion of the above analysis, posting will be made as follows:
- Cash takings to the credit of total debtors account
- Income from investments to the credit of income from investment account
- Proceeds of sale assets to the credit of the appropriate asset accounts
- Other items to the credit of the relevant accounts
If a profit or loss on the sale assets is disclosed, this should be transferred either to profit and loss account or to the proprietors’ capital account.
The amount of any cash taking used for business or private purposes should be noted, the appropriate account debited and total debtors account credited.
This involves calculating year end adjustments and balances.
A schedule should be compiled of the book debts outstanding, the total of which should be carried down in the total debtors account. The balance of this account will now represent the total sales for the period and should be transferred to the trading account.
Similarly, a schedule should be made of liabilities outstanding to trade and other creditors. The total should be carried down in the total creditors account. The balance of this account will now represent the total purchases for the period and should be transferred to the debit of trading account.
Accruals and prepayments will be carried down as closing balances in the relevant expenses accounts.
The whole of the transactions will now be recorded in total in double entry form and it will be possible to extract a trading and profit and loss account and balance sheet in the usual way.