Accounts from Incomplete Records

Ascertainment of Profit and Loss

The accounting records that are not maintained as per the double entry system but as per single entry are called Incomplete Records. Where the proprietor maintains incomplete records, he only prepares cash account, debtors account and creditors account properly. He maintains all other accounts in a haphazard manner or not maintains them at all. Thus, in this case, the ascertainment of profit and loss becomes too difficult.

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Ascertainment of Profit and Loss

Every business firm needs to prepare the financial statements in order to ascertain the results of its financial operations. It needs to know whether the business is yielding profits or not and also it’s financial position at the end of the year. But, as the records of the entity are incomplete, for the ascertainment of Profit and Loss needs to prepare the following:

  1. Statement of Affairs at the beginning and at the end of the year using the Statement of Affairs or Net Worth Method.
  2. Trading and Profit and Loss A/c and Balance Sheet using the conversion method.

Browse more Topics under Accounts From Incomplete Records

Preparation of Statement of Affairs

It is a statement that shows all the assets on one side and all the liabilities on the other side. It is similar to the Balance Sheet. With the help of this statement, we find the capital employed which is the difference between the assets and liabilities.

We prepare the Statement of Affairs at the beginning of the year to ascertain the opening capital and at the end of the year to ascertain the closing capital. However, the items of assets and liabilities are ascertained from vouchers, physical count and other relevant documents.

Performa of Statement of Affairs

Statement of Affairs

As at ……..

Liabilities Amount Assets Amount
Bills Payable Land and Building
Creditors Plant and Machinery
Outstanding Expenses Furniture
Unearned Income Stock
Capital (balancing figure) Debtors
Cash and Bank
Prepaid Expenses
Accrued Income
Capital (balancing figure)
                    Total xxx                           Total xxx

Note: When the liabilities are more than assets, then the capital will have a debit balance.

Ascertainment

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Preparation of Statement of Profit or Loss

After ascertaining the opening and closing capital with the help of the Statement of Affairs, the next step is to prepare the Statement of Profit and Loss. The adjustments relating to the additional capital and drawings during the year are required to be made for the ascertainment of Profit and Loss

Performa of Statement of Profit or Loss

Statement of Profit or Loss

For the year ending……..

Particulars Amount
         Capital as at the end of the year  xx
Add: Drawings during the year  xx
Less: Additional capital introduced during the year (xx)
         Adjusted capital at the end of the year xxx
Less: Capital as at the beginning of the year (xx)
          Profit or Loss made during the year xxx

The positive amount denotes profit while the negative amount denotes the loss.

Solved Example for You

Question: Kalpana runs a small boutique. She keeps her books on single entry basis. On 1st April 2017, her records disclose the following: Sewing Machines ₹50000, Building ₹250000, Stock ₹150000, Cash ₹40000, Bank ₹500000, Debtors ₹80000, Creditors ₹95000, outstanding wages ₹5000. On 31st March 2018 her position is as follows: Sewing Machines ₹60000, Building ₹250000, Stock ₹200000, Cash ₹60000, Bank ₹750000, Debtors ₹90000, Creditors ₹75000, outstanding wages ₹2000, advance from customers ₹50000. She introduced additional capital of ₹60000 and withdrew ₹10000 every month for her personal expenses. Calculate the profit for the year.

Solution: In the books of Kalpana

Statement of Affairs as on 1st April 2017

Liabilities Amount Assets Amount
Creditors 95000 Buildings 250000
Outstanding Wages 5000 Sewing Machines 50000
Capital (Bal. fig.) 970000 Stock 150000
Cash 40000
Bank 500000
Debtors 80000
1070000 1070000

Statement of Affairs as on 31st March 2018

Liabilities Amount Assets Amount
Creditors 75000 Buildings 250000
Outstanding Wages 2000 Sewing Machines 60000
Advance from customers 50000 Stock 200000
Capital (Bal. fig.) 1283000 Cash 60000
Bank 750000
Debtors 90000
1410000 1410000

Statement of Profit or Loss (For the year ending 31st March 2018)

Particulars Amount
         Capital as at the end of the year  1283000
Add: Drawings during the year (10000 x 12)    120000
Less: Additional capital introduced during the year    (60000)
         Adjusted capital at the end of the year 1343000
Less: Capital as at the beginning of the year (970000)
          Profit or Loss made during the year  373000

 

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The Relevance of the Extraction of Financial Statements to a set of incomplete records

SABONA
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SABONA

requirements for incomplete records

victor
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it is used for each transoction

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