Ch 17 Incomplete records wyng 1

_________________________________________________________________________________
We often prepare the final accounts (Income statement and Statement of financial position) base on
the trial balance after all double entries were made.
However, people who do not have good accounting knowledge may not prepare all double entries, (i.e.
single entry), we then have to prepare final accounts from these incomplete records by following steps:

Step 1 - Prepare format of the final accounts

Step 2 - Put all available figures in the format
Step 3 - Identify unknowns (e.g. sales, purchases, capital, inventory, cash loss…)
Step 4 - Find unknowns by using the following workings (relationships between the unknowns and
other available information)

Requirements: Format

Prepare final accounts - Income statement, Statement of financial position

Calculate inventory value/ loss - Trading account
- Statement to show inventory valuation. (F4 Ch 6)
* Cash price, selling price
Calculate cash misappropriated - cash and/ or bank account.

Workings to find unknowns:

1. Opening Capital
If we are not given the opening capital, we can calculate it by reconstruct a Statement of
financial position as at the opening date or a statement of affairs as at the opening date.

Opening Capital = Asset as at opening date – Liabilities as at opening date

ABC Company ABC Company

Statement of financial of position as at opening date Statement of affairs as at opening date
Buildings x Capital x Buildings x
(balancing figure) Inventory x
Inventory x Accounts receivables x
AR x AP x x
Accrual x Less Accounts payables x
xx xx Accrual x x
== ==
Capital as at opening date x
===

2. Capital and Net Profit

Apart from 1, we can also find out the opening capital by the following equation:

Opening capital + – = Closing Capital

Ch 17 Incomplete records wyng 2
_________________________________________________________________________________
3. Sales Trade receivables
Bal b/f x Bank x
Total sales = _____ sales + Credit sales Cr. Sales x D.A. x
R.I. x
Bad debt x
Bal.c/d x
xx xx
=== ===
Credit sales = receipts from debtors + + + + debtors at date –
debtors at date

4. Purchases Trade payables

Bank x Bal.b/f x
Total purchases = ____ purchases +Credit purchases D.R x Cr.Purchases x
R.O. x
Bal.c/d x
xx xx
=== ===
Credit purchases = ____________________________________________________________
__________________________________________________________

5. Accrued & Prepaid Expenses (F4 Ch 3)

Summary of Double entries of Expenses: (Accrued expenses, prepaid expenses)

at opening date at closing date effect on NP B/S
Accrued expenses Accrued rent incurred CL at opening date Accrued rent incurred CL at closing date CL
(e.g. accrued rent) for last yr. (Cr) Bal b/f - this yr for this yr. (Cr)Bal b/f–next yr
($660) ($1,800) (Dr) Bal c/f - this yr
Prepaid expenses Rent prepaid for this ___ at opening date Rent prepaid for next ___ at closing date CA
(e.g. prepaid rent) yr. in last yr. (__) Bal b/f - this yr yr. in this yr. (__)Bal b/f–next yr
($500) ($1,300) (__) Bal c/f - this yr

Rent
2019 $ 2019 $
Apr 2 Prepaid b/d Dec 31 Accrued b/d
Jul 3 Bank 420 Dec 31 Profit and loss 760
Dec 31 Accrued c/d 1,800 Dec 31 Prepaid c/d
2,720 2,720
2020 2020
Jan 1 Prepaid b/d Jan 1 Accrued 1,800

Double entries of Revenue / Income : (In advance , In arrear)

Accrued incomes Accrued rental CA at opening date Accrued rental CA at closing date CA
(e.g Rental income in incomes for last yr. (Dr) Bal b/f - this yr incomes for this yr. (Dr)Bal b/f–next yr
arrear) ($600) ($2,000) (Cr) Bal c/f - this yr

Prepaid incomes Rental incomes __ at opening date Rental incomes ___ at closing date
(e.g Rental income in received in advance (__) Bal b/f - this yr received in advance (__)Bal b/f–next yr
advance) for this yr. ($1,500) for next yr.(2,500) (__) Bal c/f - this yr

Rental income
2019 $ 2019 $
Apr 2 In arrear b/d Dec 31 In advance b/d
Jul 3 Profit and loss 1,400 Dec 31 Bank 1,000
Dec 31 In advance c/d _______ Dec 31 In arrear c/d
4,500 4,500
2020 ===== 2020 =====
Jan 1 In arrear b/d Jan 1 In advance b/d
Ch 17 Incomplete records wyng 3
_________________________________________________________________________________

6. Mark up & Margin (F4 Ch6)

mark up margin

Cost + Gross Profits = Selling price

e.g. 100 + 25 = 125

G.P.
Mark up = x 100% , Mark up = x 100% = %
Cost

G.P.
Margin = x 100% , Margin = x 100% = %
Selling Price

Relationships between Mark Up and Margin (1.2)

Mark Up Margin

Gross Profit Gross Profit Gross Profit

( )
Cost of goods sold Cost of goods sold + ____________ ______

Margin Mark Up

Gross Profit Gross Profit Gross Profit

( )
Sales Sales - __________ _________________

7. Cash misappropriated / Cash loss

Cash / Bank
$ $
Bal. B/d x Payments…. x
Receipts…. x x
x x
x P&L-cash stolen (balancing figure) x
x Bal c/d x
x x

Statement calculating cash misappropriated / cash stolen

$ $
Balance at opening date x
Add : Receipts… x
x x
x
Less : Payments… x
x
Cash misappropriated / cash stolen charged to x x
Profit and loss account (Balancing figure)
Balance at closing date x
Ch 17 Incomplete records wyng 4
_________________________________________________________________________________

8. Inventory Loss (F4 Ch6)

Inventory loss due to fire or burglary on the last day is the same as finding the closing inventory
in that period.

Purchases x Sales x
Opening inventory x
x
Closing inventory x
Cost of goods sold x
Gross profits x
xx xx
==== ====

As Cost of goods sold = Opening inventory + Purchases – Closing inventory

= Sales – Gross profit

So, Closing inventory = Opening inventory + Purchases – COGS

= Opening inventory + Purchases – (Sales - Gross profit)

Statement to adjust the stock level - markup/margin

e.g. Closing inventory of Peace company at 31 December 2019 was not taken. During the
period from 1 January 2020 to 18 January 2020, the company purchased goods of $3,000,
sales was record at $6,000, a customer returned 12 items of goods each at $100, and the
company returned $950 of goods to its supplier. Inventory at 18 January 2020 is $32,000
and the mark up is 20%. Find the closing inventory at 31 December 2019.

Calculate closing inventory with mark-up

Statement to show the change of inventory from 31 December 2019 to 18 January 2020
$ $
Inventory at 31 December 2019 (Balancing figure)
Add : Purchases
Returns inwards (______________) 1,000
37,950
Less : Sales (_____________)
Returns outwards 5,950
Inventory at 18 January 2020

Calculate closing inventory with margin

e.g. Same as the previous example, except that the margin is 20%.

Statement to show the change of inventory from 31 December 2019 to 18 January 2020
$ $
Inventory at 31 December 2019 (Balancing figure)
Add : Purchases
Returns inwards (_______________) 960 3,960

Less : Sales (____________) 4,800

Returns outwards 5,750
Inventory at 18 January 2020