Incomplete Records.

Presentation on theme: "Incomplete Records."— Presentation transcript:

1 Incomplete Records

2 Incomplete Records For many small businesses, they do not maintain a full set of double-entry books. All they keep are just invoices and bank statement. The preparation of the profit and loss account and balance sheet in circumstances where the bookkeeping records are inadequate or incomplete.

3 Reason for incomplete record
Lack of accounting experience to maintain records. Cash misappropriated by the assistant. Goods stolen or lost by fire.

4 Trading and profit and loss account

5 Trading and Profit and Loss Account
T. Lee for the year ended $ $ Sales (1) x Less: COGS Opening stock x Add: Purchase(2) x Less: closing stock x x Gross Profit (3) x Add: Discount received (4) x x Less: Expenses (5) Rent x Light x x

6 Working 1: Sales = Cash Sales + Credit Sale NEXT

7 Cash Sales Cash Sales  may be found in cash book
Cash book may be prepared to update the cash book and reconcile the cash book balance with the bank statement balance. to identify any missing figures e.g.: cash sales, sundry expenses, cash drawings and cash misappropriated. NEXT

8 Credit Sales Credit Sales  to be found in Total Debtors Account
 to use accounting ratio BACK

9 Working 2: Purchases = Cash Purchases + Credit Purchases NEXT

10 Cash/Credit purchases
Cash Purchases  may be found in cash book. Credit Purchases  Total Creditors Account  to use accounting ratio BACK

11 Working 3: Gross Profit To use ratios such as mark-up and margin to find gross profit figures Then use gross profit figures to find missing figures. (e.g.: purchases, cost of good sold, closing stock, etc.) NEXT

12 Introduction of accounting ratios
Mark-up Margin NEXT

13 Mark-up: Refer to profit which expressed as a fraction or percentage of the cost price. Margin; Refer to profit which expressed as a fraction or percentage of the selling price. NEXT

14 Mark-up = Profit (P) Cost of Goods Sold (C) Margin = Profit (P)
Sales (S) X 100% X 100% NEXT

15 Relationship of 2 ratios

16 Sales = Cost + Profit S = C + P Mark-up  Margin Margin  Mark-up P P
? C S P P P =>   C C+P S P P ?   S C P P P  =>  NEXT C+P C S

17 Example 1 Mark-up is 20%, what is margin? Mark-up: 20  Margin: 20 100
100+20 NEXT

18 Example 2 Margin is 25%, what is mark-up? Margin: 25  Mark-up: 25 100
75 BACK

19 Working 4: Income earned
= Cash received + Prepaid last year – Accrued last year –Prepaid this year + Accrued this year BACK

20 Working 5: Expenses incurred
= Cash paid + Prepaid last year – Accrued last year – Prepaid this year + Accrued this year BACK

21 Balance Sheets

22 Balance Sheet Net Profit
= Closing capital – Opening capital + Drawings – Capital introduced Opening capital Balance = Opening assets – Opening liabilities Sometimes, statement of Affairs need to be prepared in order to find out the opening capital balance.

23 Example Balance Sheet at 31 June 19-1 (extracts) Stock $2000
Debtors $2000 Creditors $ 1000 During this period: $ Receipts from debtors Cash Sales Payment to creditors Payment to Rent At 30 June 19-2: Debtors $1000 Creditors $1000 Mark-up 20% Accrued at 30 June 19-2 $200 Prepare final accounts for the year ended 30 June 19-2.

24 Trading and profit and loss account for the year ended 30 June 19-2
$ $ Sales (Working 1) Less: COGS Opening stock Add: Purchase (Working 2) 6000 Less: closing stock 5000 Gross profit (Working 3) Less: Expenses Rent ( ) Net Profit

25 Sales = Cash Sales + Credit Sales = 1000 + 5000 = $6000
Working 1 Total Debtors Bal b/d Cash Sales (bal. fig.) Bal c/d 7000 7000 Sales = Cash Sales + Credit Sales = = $6000 BACK

26 Sales = Cash Purchases + Credit Purchases = 0 + 4000 = $4000
Working 2 Total Creditors Cash Bal b/d Bal c/d Purchase (bal.fig.) 5000 5000 Sales = Cash Purchases + Credit Purchases = = $4000 BACK

27 Mark-up  Margin 20  20 100+20 Sales = Cost + Profit 100
Working 3 Mark-up  Margin  20 Sales = Cost + Profit 6000 = x * 20/120 6000 = x x = 5000 100+20 100 BACK

28 Further Example

29 Stock loss Stock loss (e.g. $1000) without insurance claim
Dr. Profit and loss $1000 Cr. Trading $1000 Stock loss (e.g. $1000) with insurance claim (e.g. $800) Dr. Bank $800 Dr Profit and loss $200 Cr Trading $1000 (net loss)

30 Balance Sheet at 31 June 19-1 (extracts)
Stock $23750 Debtors $16000 Creditors $11520 During this period: $ Receipts from debtors Cash Sales Payment to creditors Payment to expenses At 30 June 19-2: Debtors $18780 Creditors $14210 The firm achieves a mark-up of 25% on all cost. The warehouse has burned down and all the stock was destroyed. The insurance company gives $15000 for compensation for stock loss.

31 Trading and Profit for the year ended 30 June 19-2
$ $ Sales ( ) Less: COGS Opening stock Add: Purchase ( ) 86070 Less: Fire loss (21270) [2] Gross profit (81000 * 25/125) [1] Less: Expenses Expenses Fire loss ( ) Net Profit [3]