Accounts from Incomplete Records

Preparing Trading and Profit and Loss and Balance Sheet

Preparing a trading account is the first stage in of final accounts of a trading concern. It determines the gross profit or gross loss of the concern for that accounting year. For determining the true result or the net result of the business, preparing the Trading and Profit and Loss account is necessary. We prepare these accounts on the last day of the accounting year. We consider only direct revenue and direct expenses in this account.

Suggested Videos

Play
Play
previous arrow
next arrow
previous arrownext arrow
Slider

 

Preparing Trading and Profit and Loss and Balance Sheet

Preparation of Trading Account

For preparing Trading and Profit and Loss Account we need complete information regarding expenses, incomes, assets and liabilities of the concern. In incomplete records, some details are given and some are missing. Thus, we need to ascertain the missing details in an indirect manner by using the logic of double-entry.

The most common items that are missing and we have to find out for preparing Trading and Profit and Loss Account are:

  • Opening capital
  • Credit Purchases
  • Credit sales
  • Bills payable accepted
  • Bills receivable received
  • Payments to creditors
  • Payments to debtors
  • Any other cash/bank related items.

As we know that opening capital can be obtained by preparing the statement of affairs at the beginning of the year. For other items that are missing, we can easily obtain them by preparing accounts such as total debtors and total creditors, total bills receivable and total bills payable accounts and summary of cash.

Ascertainment of Credit Purchases

Generally, the credit purchase figure is not available from the incomplete records. It is possible that some other information related to creditors may also be missing. So, we will prepare the total creditors to account so that, credit purchases or any other missing figure related to creditors, as the case may be, can be ascertained as the balancing figure.

Ascertainment of Credit Sales

Generally, the figure of credit sales is also not available from incomplete records. Some other information which is related to debtors may also be missing. Therefore, we will prepare the total debtors to account so that the number of credit sales or any other missing figure, as the case may be, can be traced out as the balancing figure.

Ascertainment of Bills Receivable and Bills Payable

To find out the figure of the bills received during the year, we prepare Bill’s Receivable account. Also, to find out the figure of the bills accepted during the year, we prepare the Bills Payable account.

Ascertainment of Missing Information through Summary of Cash

Sometimes, it is possible that the amount paid to creditors or the amount received from debtors may be missing. Also, the opening or closing cash or bank balance may be missing. So to ascertain any missing item of receipt of payment, we prepare a cash book summary. It shows all receipts and payments during the year and the balancing figure is the amount of missing item.

In case both amount paid to creditors and that received from debtors are missing. In that case, we will obtain the amount of any one of these first through the total creditors or total debtors account. And the other missing information we will ascertain from the cash book summary. After the missing figures are obtained, we can prepare the final accounts straight away or after the preparation of the trial balance.

Solved Example for You

Q: Miss Krati started business on 1st January 2017, with cash of ₹ 25,000, furniture of ₹ 5,000, goods of ₹ 1,000, and machinery worth ₹ 10,000. During the year she further introduces the capital of ₹ 10,000 by opening a bank account. From the following information extracted from her books required for preparing Trading and Profit and Loss Account and Balance Sheet

Receipt from debtors 28,750
Cash sales 22,500
Cash purchases 12,500
Wages 2,500
Salaries 8,750
Trade expenses 3,250
Electricity bill of factory 3,750
Drawings 1,500 p.m.
Cash paid to creditors 21,000
Discount allowed 600
Discount received 1,500
Bad debts written off 650
Closing cash balance 10,000

Miss Krati used goods worth ₹ 1,250 for the private purpose, which is not recorded by her in the book. Charge depreciation on furniture @10% and on machinery @20% p.a. On 31st March 2018, debtors, creditors, and stock in trade were valued as ₹ 35,000, ₹ 17,500, and ₹ 12,500 respectively.

Ans:

Trading and Profit and Loss Account                                         

Particulars Amount (₹) Particulars Amount (₹)
To opening stock 10,000 By Sales
To Purchases: Cash sales 22,500
Cash purchase 12,500 Credit sales(WN2) 65,000 87,500
Credit purchase(WN3) 40,000 By Closing stock 12,500
Less: Drawings of goods (1,250) 51,250
To Wages 2,500
To Electricity bill of factory 3,750
To Gross profit 32,500
1,00,000   1,00,000
To Salaries 8,750 By Gross profit 32,500
To Trade expenses 3,250 By Discount received 1,500
To Discount allowed 600
To Bad debts 650
To Depreciation:
Furniture @10%                     500
Machinery @20%               2,000 2,500
To Net profit 18,250
34,000 34,000

Balance Sheet as at 31st December 2017

Liabilities Amount (₹) Assets Amount (₹)
Capital (WN1) 50,000 Cash in hand 10,000
Add: Net profit  18,250 Cash at the bank(WN4) 6,500
Add: Additional capital 10,000 Stock 12,500
Less: Drawings  (1,250) Debtors 35,000
Cash  (18,000) Furniture                    5,000
Goods 59,000 Less: depreciation     (500) 4,500
Creditors 17,500 Machinery               10,000
Less: depreciation  (2,000) 8,000
76,500   76,500

 

Working notes:

1] Statement of Affairs as on 31st December 2017

Liabilities Amount (₹)   Assets Amount (₹)
Capital (balancing figure) 50,000 Cash 25,000
Stock 10,000
Furniture 5,000
Machinery 10,000
50,000   50,000

2] Debtors Account

Date Particulars Amount(₹)) Date Particulars Amount (₹)  
 

 

To Balance b/d NIL By Cash 28,750
 

 

 

To Sales  (credit) 65,000 By Discount allowed 600
(balancing figure) By Bad debts 650
By Balance c/d 35,000
    65,000     65,000

 3] Creditors Account

Date Particulars Amount(₹) Date Particulars Amount(₹)  
To Cash 21,000 By Balance b/d NIL
To Discount received 1,500 By Purchases credit 40,000
To Balance c/d 17,500 (balancing figure)
40,000     40,000

4] Summary of Cash

Receipts Amount(₹)   Payments Amount(₹)  
To Balance b/d 25,000 By Purchases 12,500
To Capital introduced (bank) 10,000 By Wages 2,500
To Debtors 28,750 By Salaries 8,750
To Sales 22,500 By Trade expenses 3,250
By Electricity bill for factory 3,750
By Creditors 21,000
By Drawings (1,500 p.m.) 18,000
By Balance c/d – cash 10,000
By Cash at Bank (Bal. fig.) 6,500
86,250   86,250

 

Share with friends

Customize your course in 30 seconds

Which class are you in?
5th
6th
7th
8th
9th
10th
11th
12th
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
tutor
tutor
Ashhar Firdausi
IIT Roorkee
Biology
tutor
tutor
Dr. Nazma Shaik
VTU
Chemistry
tutor
tutor
Gaurav Tiwari
APJAKTU
Physics
Get Started

3
Leave a Reply

avatar
2 Comment threads
1 Thread replies
2 Followers
 
Most reacted comment
Hottest comment thread
3 Comment authors
victorSABONAjude Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
jude
Guest
jude

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

SABONA
Guest
SABONA

requirements for incomplete records

victor
Guest
victor

it is used for each transoction

Download the App

Watch lectures, practise questions and take tests on the go.

Customize your course in 30 seconds

Which class are you in?
No thanks.