by Neil Stein
26 Aug 2004
| Examiners like questions on incomplete records because they provide the opportunity to test a variety of bookkeeping and accounting techniques. |
The two main instances in which incomplete records can be found are where:
It is still possible to calculate a profit or loss figure by using the fact that the profit of a business must be represented by more assets. We list and value the opening and closing net assets, then calculate the profit as the difference between the two:
Profit = Closing net assets - Opening net assets
Allowance must be made for proprietor's drawings and extra capital introduced, so the formula becomes:
Profit = Closing net assets - Opening net assets + Drawings - Capital introduced
There is little scope here for a major question, but it could form the basis of a two-mark multiple-choice question.
This a more common scenario, both in exam questions and in practice. There are standard techniques for calculating missing figures:
We need to have the opening capital of the business at the beginning of a period to provide a starting point - the capital in the balance sheet account. Questions will usually give us a list of opening assets and liabilities, and we use this to arrive at the opening capital.
Missing figures for sales and purchases
If we know the opening and closing debtors of a business, and the cash received from customers, we can calculate sales. All we need to do is set up a sales ledger total account (see Figure 1).
There is another way to calculate sales, purchases or stock figures, and that is to use the trading account format. We normally set up the trading account as (figures invented):
In the example above, gross profit is 25 per cent of sales. If we are told this, we can insert the gross profit of £25,000 and so calculate the missing stock figure as a balancing item. We can also find a missing purchases figure, or even a missing sales figure.
Suppose we are given:
£75,000 x 100/75 = £100,000.
Whenever the gross profit percentage is given in an incomplete records question, you know that this technique is needed.
Missing figures for cash
We may be given details of cash receipts and payments plus details of opening and closing balances, but with one figure missing, often the proprietor's drawings. We can calculate the missing figure by setting up a cash account to find the balancing item required.
Here are the incomplete records techniques:
Neil Stein is examiner for Paper 1.1