Revision Notes

Class- 11 Accountancy
Chapter 11- Accounts From Incomplete Records

Meaning of Incomplete Records

Incomplete records are the accounting records that do not strictly follow the double entry
system of accounting. For example: If one sided entry, or no entry for a transaction is
recorded, it is classified as an incomplete record.

Features of Incomplete Records

Many times, small shopkeepers maintain incomplete records due to partial recording of
transactions. In case of large organisations, the records may become incomplete due to
loss by theft or fire, or due to natural calamities.

The features of incomplete records are as follows:

1) Incomplete records system is not a systematic method of recording transactions due to

the partial recording of transactions.

2) In this system, the records for cash transactions and personal accounts are maintained
properly, whereas no information is recorded regarding revenue/gains, expenses/losses,
or assets and liabilities.

3) Cash books often contain records for the personal transactions of owners.

4) Comparability of accounts is not possible because there is no uniformity among the

accounts of different organisations. This is because each organisation maintains records
as convenient to them.

5) This system results in increased dependence on original vouchers because figures

necessary to ascertain profit/loss or other information can be collected only from the
original vouchers such as sales invoice or purchase invoice, etc.

6) The profit/loss for the year ascertained using this system is not highly reliable and
accurate because it only provides an estimated profit/loss for the year.

Class XI Accountancy www.vedantu.com 1

7) The balance sheet at the end of the year does not reflect a true and complete picture of
the assets and liabilities in the business because of partial recording of assets and
liabilities.

Reasons of Incompleteness and Its Limitations

Many businessmen prefer to keep incomplete records because:

1) Maintaining incomplete records is easier for the people who lack proper knowledge of
accounting principles.

2) It is an inexpensive mode of maintaining records because maintaining incomplete

records is easier, and specialised accountants charging high costs are not required.

3) It saves time because only a few books need to be maintained.

4) The owners can record only the important transactions and not record the less
important transactions as per their needs, making this mode a convenient mode of
maintaining records.

Some of the limitations of maintaining incomplete records are:

1) Accuracy of accounts cannot be ensured. This is because the lack of a double-entry

system means that a trial balance cannot be prepared to ascertain the accuracy of
accounts.

2) The financial results of the business operations cannot be correctly ascertained and
evaluated because reliable financial statements cannot be prepared.

3) Due to lack of reliable financial statements,important analysis such as analysis of

profitability, liquidity, and solvency of the business cannot be made.

4) Lack of financial reliable statements and proper analysis makes it difficult to raise
funds from external sources. This causes issues in planning future business activities.

5) It is difficult for the owners to claim insurance in case of loss of inventory by theft or
due to fire.

6) The tax authorities cannot be convinced easily about the reliability of the computed
income.

Class XI Accountancy www.vedantu.com 2

Statement of Affairs
If incomplete records are maintained, then the amount of change in the capital during the
period is ascertained by preparing the Statement of asset and liabilities as at the
beginning and at the end of the relevant accounting period. This statement is called the
Statement of Affairs, which shows the assets and liabilities, just like a balance sheet.

The basic format of a Statement of Affairs is shown as follows:

Statement of Affairs as at _____

Amount Amount
Liabilities Assets
(Rs.) (Rs.)
Bills Payable Land and Building
Creditors Machinery
Outstanding Expenses Furniture
Capital (balancing figure) Stock
Debtors
Cash and Bank
Prepaid Expenses
Capital (balancing
figure)
xxxx xxxx

Difference between Statement of Affairs and Balance Sheet

The following table shows the fundamental differences between a Statement of Affairs
and a Balance Sheet.

Basis of
Statement of Affairs Balance Sheet
difference
The Statement of Affairs is less The Balance Sheet is more
reliable because it is reliable because it is
Reliability constructed using incomplete constructed using records that
records that do not follow the follow the Double-Entry
Double-Entry system of system of bookkeeping.
bookkeeping.

Class XI Accountancy www.vedantu.com 3

 The Statement of Affairs is The Balance Sheet is prepared
prepared to ascertain the to show the true and complete
Objective amount of capital at the financial position of a business
beginning of the year, or on a entity on a particular date.
particular date.
If some assets or liabilities are If some assets or liabilities are
omitted from the records, it is omitted from the records, it is
Omission not easy to discover the ones easy to discover them from the
that are not recorded. accounting records in the
books.

Statement of profit and loss

The difference between the opening and closing capital, as ascertained using the
Statement of Affairs, represents the increase or decrease in capital. This increase or
decrease is to be adjusted for any additional capital brought in, or any drawings taken out
by the owners, to ascertain the profit/loss made during the period.

The Statement of Profit or Loss is prepared to make the necessary adjustments and thus,
determine the exact amount of profit or loss made during the year.

The basic format of a Statement of Profit or Loss is shown as follows:

Statement of Profit or Loss for the year ended _____

Particulars Amount (Rs.)

Capital as at the end of the year (computed from statement of xxxx
affairs as at the end of the year)
Add: Drawings during the year xxxx
Less: Additional capital introduced during the year (xxxx)
Adjusted capital at the end of the year xxxx
Less: Capital as at the beginning of the year (computed from (xxxx)
statement of affairs as at the beginning of the year)
Profit or Loss made during the year xxxx

The following equation shows the same computation as performed in the Statement of
Profit or Loss.

Class XI Accountancy www.vedantu.com 4

Profit/Loss  Capital at end  Capital at beginning  Drawings during the year
 Additional capital introduced during the year

Preparing Trading and Profit and Loss Account and the Balance Sheet
To prepare the proper and complete financial statements, complete information regarding
details of various items is required. However, when incomplete records are maintained,
the details of some items need to be ascertained using the logic of the double entry
system of bookkeeping. This involves preparing a summary of cash, ledger accounts, etc.
to find the balancing figures and use these details to prepare the financial statements.

The most common items missing from the records that need to be ascertained indirectly
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
Ascertaining Credit Purchases
When incomplete records are maintained, some information related to the creditors might
be missing. The missing information may be either credit purchases, payment made to
creditors, or any other figure.

The missing figure can be ascertained by preparing the total creditors account, entering
the given information related to the creditors in the account, and determining the
balancing figure. The balancing figure provides the required missing information related
to the creditors.

Ascertainment of Credit Sales

Similar to ascertainment of credit purchases, some information related to the debtors

might be missing. The missing information may be either credit sales, payment received
from debtors, or any other figure.

Class XI Accountancy www.vedantu.com 5

The missing figure can be ascertained by preparing the total debtors account, entering the
given information related to the debtors in the account, and determining the balancing
figure. The balancing figure provides the required missing information related to the
debtors. Any bill or cheque dishonoured is debited to the total debtors account.

Ascertainment of Bills Receivable and Bills payable

In many cases, some information related to bills receivable or bills payable is missing.
Even if all details related to the bills are available, it may happen that the figures of bills
received and bills accepted during the accounting period are not given. To ascertain such
figures, the total bills receivable account, or the total bills payable account is prepared,
depending upon what figure is to be ascertained.

Ascertainment of Missing Information through Summary of Cash

A summary of the Cash Book is prepared to ascertain any missing figure related to cash
transactions. It can be used to ascertain the missing amount paid to creditors, the missing
amount received from debtors, the missing receipts or payments, or even missing opening
and closing balances of the cash or bank.

Sometimes, two figures related to cash might be missing, which cannot be ascertained by
just the summary of the cash book. For example, the amount received from debtors and
the amount paid to creditors are both missing. In such a case, the total creditors account
can be prepared to determine the amount paid to creditors. Then, the balancing figure of
the summary of the cash book will represent the amount received from debtors.

It is also possible to prepare the total debtors account first, and then prepare the cash
book to ascertain the amount paid to creditors.

Illustration: Mrs. Surbhi started a business on April 01, 2016 with cash Rs. 50,000,
furniture worth Rs. 10,000, goods worth Rs. 2,000, and machinery worth Rs. 20,000.
During the year, she further introduced Rs. 20,000 in her business by opening a bank
account. From the following information extracted from her books, you are required to
prepare final accounts for the ended March 31, 2017.

Particulars Amount (Rs.)

Class XI Accountancy www.vedantu.com 6

 Receipts from debtors 57,500
Cash sales 45,000
Cash purchases 25,000
Wages paid 5,000
Salaries to staff 17,500
Trade expenses 6,500
Electricity bill of factory 7,500
Drawings of Surbhi 3,000
Cash paid to creditors 42,000
Discount allowed 1,200
Discount received 3,000
Bad debts written-off 1,300
Cash balance at the end of year 20,000

Mrs. Surbhi used goods worth Rs. 2,500 for private purposes, which is not recorded in
the books. Depreciation is to be charged on furniture at 10% p.a. and machinery at 20%
p.a. The debtors on March 31, 2017 were worth Rs. 70,000, and the creditors Rs 35,000.
On the same date, the stock was valued at Rs. 25,000.

Ans: Books of Mrs. Surbhi

Trading and Profit and Loss Account

for the year ended March 31, 2017

Amount Amount
Expenses/Losses Revenues/Gains
(Rs.) (Rs.)

Class XI Accountancy www.vedantu.com 7

To Opening stock 20,000 By Sales
To Purchases: 45,000 1,75,000
To Cash By Credit 25,000
25,000 1,30,000
To Credit By Closing stock
80,000
1,02,500
1,05,000 5,000
Less: Goods used 7,500
for private use 65,000
(2,500)
To Wages
To Electricity bill of
factory
To Gross profit c/d
2,00,000 2,00,000
To Salaries 17,500 By Gross profit b/d 65,000
To Trade expenses 6,500 By Discount received 3,000
To Discount allowed 1,200
To Bad debts 1,300
To Depreciation:
Furniture
1,000 5,000
Land and Building 36,500
4,000
To Net profit (transferred
to capital account)
68,000 68,000

Balance Sheet of Mrs. Surbhi as at March 31, 2017

Amount Amount
Liabilities Assets
(Rs.) (Rs.)

Class XI Accountancy www.vedantu.com 8

Creditors 35,000 Cash 20,000
Capital Bank 13,000
1,00,000 Stock 25,000
Add: Net profit Debtors 70,000
36,500 Furniture
10,000 9,000
1,36,500 Less: Depreciation
Add: Additional (1,000) 16,000
Capital Machinery
20,000 1,18,000 20,000
Less: Depreciation
1,56,500 (4,000)
Less: Drawings
Cash 36,000
Goods 2,500
(38,500)
1,53,000 1,53,000

Working Notes: Total Creditors Account

Dr. Cr.

Dat J Amount J Amount

Particulars Date Particulars
e F (Rs.) F (Rs.)
To Cash 42,000 By Balance b/d NIL
To Discount 3,000 By Purchase 80,000
received 35,000 credit (balancing
To Balance c/d figure)
80,000 80,000

Total Debtors Account

Dr. Cr.

Dat J Amount J Amount

Particulars Date Particulars
e F (Rs.) F (Rs.)
To Balance b/d NIL By Cash 57,500
To Sales (credit) 1,30,000 By Discount 1,200
(balancing figure) allowed
By Bad debts 1,300
By Balance c/d 70,000
1,30,000 1,30,000
Class XI Accountancy www.vedantu.com 9
 Statement of Affairs as on March 31, 2016

Amount Amount
Liabilities Assets
(Rs.) (Rs.)
Capital (balancing figure) 1,00,000 Cash 50,000
Stock 20,000
Furniture 10,000
Machinery 20,000
1,00,000 1,00,000
Summary of Cash

Dr. Cr.

Amount Amount
Receipts Payments
(Rs.) (Rs.)
To Balance b/d 50,000 By Purchases 25,000
To Capital (Bank) 20,000 By Wages 5,000
To Debtors 57,500 By Salaries 17,500
To Sales 45,000 By Trade expenses 6,500
By Electric bill 7,500
By Drawings 36,000
By Creditors 42,000
By Balance c/d – cash 20,000
By Closing bank 13,000
(balancing figure)
1,72,500 1,72,500

Class XI Accountancy www.vedantu.com 10