ACCOUNTING WITH INCOMPLETE RECORDS OR SINGLE ENTRY

There are some business operations that do not maintain strict double entry
principles in their accounting records. Their book-keeping efforts may be limited
to the cashbook, and supported by subsidiary records, or books of original entry;
a listing of assets and liabilities; as well as data for non cash items. This
limited and somewhat partial accounting system is called single entry or
incomplete records.

Single entry may serve its purpose as a tool to aid management in financial
control. However, it would be lacking in its use for effective financial
management in such areas as assessing profitability, co-ordinating accounts
receivable and payable, establishing liquidity and solvency situations. Thus
single entry accounting will necessitate the conversion to double entry at some
point in the accounting process. This may involve a number of accounting aids :

i. The Statement of Affairs : this corresponds to the balance sheet, as is used

to show the financial position at the start of the period

ii. Control accounts : to derive figures such as total sales, total purchases, and other
accounting items

iii. Adjustments for accruals and prepayments, and non-cash items such as
depreciation

THE STATEMENT OF AFFAIRS

Utilizing the accounting equation A = OE + L, the statement of affairs is drawn

up similar to the balance sheet. It uses the list of balances given at the start of
the year, and aids in deriving the opening capital. When prepared over a given
period, it allows for both the opening and closing capitals to be ascertained. The
difference between the two capitals would represents the net income for the year.

LECTURE QUESTION
The following balances were obtained from the books of Farmer Brown’s Cricket
Farm at the dates given

ITEMS 01 JAN 2000 31 DEC 2000

Cash 600 750
Stock 8,000 9,020
Motor Vehicle 20,000 22,000
Machinery 10,000 20,000
Building 40,000 40,000
Creditors 3,000 3,500
Debtors 5,000 4,200
Loan 20,000 15,000

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During the year Farmer Brown took goods totaling $500 and cash of $1000 for
personal use

Required : Derive (a) Farmer Brown’s opening and closing capital (b) the net
income for the year.

STATEMENT OF AFFAIRS 01.01.2000 31.12.2000

Non-Current Liabilities
Building 40,000 40,000
Machinery 10,000 20,000
Motor Vehicle 20,000 22,000
-------- --------
70,000 82,000
-------- --------
Current Assets
Stock 8,000 9,020
Debtors 5,000 4,200
Cash 600 750
------- -------
13,600 13,970
-------- --------
83,600 95,970
===== =====

Owners Equity Capital ? ?

Non-Current Liability : Loan 20,000 15,000

Current Liability
Creditors 3,000 3,500
-------- --------
83,600 95,970
===== =====

By working to harmonize the balance sheet, we derive the two capitals as

Capital 60,600 77,470

We can also derive the net income as follows

Capital at start 60,000 60,000
+ Net Income ? 18,360
-------- --------
? 78,970
Less Drawings (1,500) (1,500)
------- -------
Capital at end 77,470 77,470
===== =====

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Generally, a cashbook record accompanies the list of assets and liabilities. Lets
take Farmer Brown’s Cashbook to be as follows :

CASH BOOK
Bal b/d 600 Insurance 3,000
Sales 70,000 Purchases 50,000
Recpt from Cr Customers 16,000 Machinery 10,000
Commission Received 10,000 Drawings 1,000
Pmt to Creditors 20,050
Loan Repayment 5,000
Motor Vehicles 2,000
Motor Repairs 1,800
Office Expenses 3,000
Bal c/d 750
-------
------- 96,600
96,600 =====
=====

From the cashbook details and the list of debtors and creditors provided earlier we
can ascertain the figures for sales and purchases :

PLCA SLCA
Cash 20,050 Bal b/d 3,000 Bal b/d 5,000 Bal c/d 4,200
Bal c/d 3,500 Purchases 20,550 Sales 15,200 Cash 16,000
'---------- '---------- '---------- '------------
23,550 23,550 20,200 20,200
'====== '===== '====== '======

PURCHASES SALES
PLCA 20,550 Drawings 500 Bal c/d 85,200 SLCA 15,200
Cash 50,000 Bal c/d 70,050 Cash 70,000
'----------- '----------- '------------ '----------
70,550 70,550 85,200 85,200
'====== '======= '======= '======

It will be necessary to make adjustments for items that were included in the list
of assets and liabilities, as well as in the cash book.

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Aside from these adjustments, it may also be necessary to account for such
adjustments as accruals and prepayments, provision for depreciation, provision for
bad debts. These are accounted for with the same principles as those discussed
earlier.
Having reconciled the list of items with the cashbook, and accounted for any
necessary adjustment, a double entry based trial balance may be extracted :

DR CR
Insurance 3,000
Purchases 70,050
Machinery 20,000
Drawings 1,500
Loan 15,000
Motor Repairs 1,800
Office Expenses 3,000
Motor Vehicles 22,000
Sales 85,200
Commission Received 10,000
Capital 60,600
Debtors 4,200
Creditors 3,500
Cash 750
Building 40,000
Stock at Jan 1, 2000 8,000
'------------ '-------------
174,300 174,300

'======= '========
Footnote
1. Stock at Dec 31, 2000 9,020

From this trial balance, the set of final accounts can be prepared :

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The Income Statement The Balance Sheet

1. Non Current
1. Net Sales Assets
Sales 85,200 Building 40,000
Machinery 20,000
2. Cost of Sales Motor Vehicle 22,000 82,000
Opening Stock 8,000 ---------
+ Purchases 70,050
----------- 2 Current Asset
78,050 Stock 9,020

- Closing Stock (9,020) '(69,030) Debtors 4,200

----------- ------------ Cash 750 13,970
---------
Gross Profit 16,170 - ------------
95,970
3. Other Revenue ======
Commission Rec'd 10,000
------------ 3. Owner's Equity
26,170 Capital 60,600
+ Net Income 18,370
---------
4. Other Expenses -
Insurance 3,000 78,970

Motor Repairs 1,800 - Drawings (1,500) 77,470

---------
Office Expenses 3,000 '(7,800) -
----------- -----------
Net Income 18,370 4. Non Current Liab
======
= Loan 15,000

5. Current Liability
Creditors 3,500
-----------
95,970
======
=

UNASCERTAINED CLOSING STOCK

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In some cases the full value of the closing stock cannot be ascertained. This may be
due to pilferage, damaged goods, etc. Instead of giving a closing stock, some hint
would be available about the rate of mark up or margin.

Mark up is the gross profit expressed as a fraction of cost of sales, while margin
is the gross profit expressed as a fraction of sales. Given the there is a link
between sales, cost of sales, and gross profit ( sales – cost of sales = gross profit)
there is also a link between mark up and margin.

markup = gross profit a

------------- = --------
Cost of sales b

margin = gross profit a gross profit

------------- = ---------- = -----------------------
sales a+b gross profit + COS

so if mark up = a/ b then margin = a / a + b

and if margin = a / c then mark up = a/ c–a

For Example

COS 60 Sales 100

Gross Profit 40

Mark up = 40/60 = 2/3 Margin 40/ (40 + 60) = 2/5

Margin = 40/100 = 2/5 Mark up 2 / 5-2 = 2/3

Lecture Question

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On January 1, Farmer Bown had a stock of goods valued at 8,000. During the
year his sales amounted to 85,200. His purchases amounted to 70,050, with a
mark up is 23%. Heavy rains at the end of the year destroyed a portion of his
closing stock. What was left was valued at 2,020. In preparation of his insurance
claim, he has asked for help to ascertaining the value of stock that was destroyed.

Since mark up is 23 % or 23/100, then margin is 23/123 or 0.19

Cost of Purchases Sales 85,200

-----------------------
Opening Stock 8,000
+ Purchases 70,050
--------
78,050
- Closing Stock ?
-------
?
Gross Profit ?
--------- --------
85,200 85,200
===== =====

Since Margin is 0.19 then the gross profit is 85,200 x 0.19 = 16,170. Working
back from the Gross profit we deduce the cost of sales to be 85,200 – 16,170 =
69,030. Hence the closing stock is 9,020. Given that 2,020 was remaining then
7,000 was destroyed.

The stock destroyed is then accounted for as Dr Damaged Goods Cr Purchases

With the damaged good accounts written off as an expense and the stock value
carried as 2,020. Hence the profit would be reduced by 7,000.

However if the goods are covered by insurance, then a claim would be made for
the loss. The sum received would be accounted as Dr Bank Cr Insurance Income.
The insurance income would be added back to profit to restitution for the loss in
the damage goods.

TUTORIAL QUESTIONS

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1. The Coffee Jugs is a sole trader enterprise which did not maintain full double
entry records. The following items were available :

Jan 1, 1980 Dec 31, 1980

Building 100,000 100,000

Fixtures and fittings 25,000 25,000
Loan 80,000 80,000
Stock 12,000 15,500
Bank 20,000 53,500
Debtors 8,500 10,000
Creditors 5,600 7,500

During the year cash received from credit customers amounted to 56,500, while
cash paid to suppliers was 23,000. Goods taken for personal use amounted to
5,000.

Required :
a. Calculate the owners equity as at January 1, 1980 and December31, 1980
b. Ascertain the amount for net income for the year via the balance sheet.
c. Derive the figures for sales and purchases
d. Calculate the net income via the income statement

2. A fire broke out at Hall’s Mall, destroying most of its stock of goods. The
amount salvaged was valued at 6,000. The following data was available :

a. Balances at June 1, 1991

Stock 23,750
Debtors 16,000
Creditors 11,520

b. Transactions to date
Receipts from Customers 61,000
Cash sales 17,220
Payments to suppliers 59,630

c. Balances to date
Debtors 18,780
Creditors 14,210

Given that goods are marked up at 50%. Calculate the value of goods that were
destroyed in the fire.

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3. Punky Brewster operates a pastry shop in Victoria Park, Linstead. Thieves
plundered the shop one night leaving behind a stock of goods valued at $4,000

The following information was available

a. Balances as at May 1, 2000

Stock 15,000
Debtors 20,000
Creditors 10,000

b. Cashbook summary
Receipts from debtors 88,000
Payments to suppliers 60,000

c. Balance to date
Debtors 12,000
Creditors 13,000

Given that goods are marked up at 25%, calculate the value of stock that was stolen.

4. The More Gas Pro is a home gas delivery firm in Portmore, On January 1,
2006 the firm had a stock valued at $4,700 and trade creditors totaling $3,950.

During the six months to June 30, 2006 sales were $42,000. The firm makes a gross
profit margin of 33 1/3 %.

On June 30, there was a burglary at the shop, and all the stock then was stolen. In
trying to establish the value of the goods that was stolen, the firm confirmed that

i. $28,400 was paid to creditors during the period

ii. Amount owing to creditors at June 30 was $5,550

Required

a) Calculate the value of the closing stock

b) Prepare the income statement for the six months to June 30, 2006

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5. The following data were obtained from the books of Neville Bertis Bell for
the year 2002

Bank Summary
----------------------------------------------------------------------------------
Bal b/d 1,028 Payment to suppliers 37,572
Sales Deposit 45,558 Rent 1,500
Bal c/d 236 Rates
750
General expenses 3,000
Drawings 4,000
------ -------
46,822 46,822
===== =====

Bertis confirmed that 4,442 was taken from sales prior to the deposit and used
to pay wages of 4000 and office expenses 442.

He has also provided the following details

Jan 1 Dec. 31

Debtors 4,400 5,300

Creditors 3,890 3,418
Stock 4,860 6,300
Equipment 20,000 20,000
Motor vehicle 30,000 30,000

Required :

a. Extract a trial balance from the records as at December 31, 2002

b. Prepare the income statement and the balance sheet for the year

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6. The Lyndale Craft Shop has provided the following data for 1998

Jan 1 Dec 31
1998 1998

Plant & Machinery(Book Value) 31,500 33,350

Stock 15,120 17,255
Debtors 11,396 13,020
Creditors 6,020 6,468
Rates paid in advance --- 350
Rent owing 910 1,750
Motor Vehicle ( Book Value ) 45,000 40,000
Loan 30,000 27,000

The cashbook summary for the year was as follows

Bank
----------------------------------------------------------------------------------------
Bal b/d 1,834 Loan 3,000
Cash Sales 116,592 Creditors 119,112
Debtors 57,134 Wages 18,669
Rent 5,250
Rates 2,750
Machinery 7,000
Drawings 7,500
Admin expenses 1,200
Bal c/d 11,079
---------- -----------
175,560 175,560
====== =======

Additional details :

a. Goods taken for personal use amounted to 5,500

b. Bad debts of 2,200 were written off
c. Cash discounts of 4,000 were obtained from suppliers.

Required

i. Draft the trial balance with appropriate foot notes as at the end of the year 1998

ii. Prepare the set of final accounts for the year 1998

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7. Bogle’s Bulla is a sole proprietorship that did not maintain proper accounting
records. The following data is available for 1996 :

a. Cash Book Summary

---------------------------------------------------------------------------------------------
Bal b/d 10,000 Payment to suppliers 157,340
Cash sales 50,000 Cash purchases 7,500
Receipts from Debtors 219,500 Rent 22,500
Commission 21,000 Rates 2,500
Wages 23,000
General Office Expenses 3,500
Loan 25,000
Drawings 12,000
Bal c/d 47,160
-------- ----------
300,500 300,500
====== ======

b. Balances At Jan 1 At Dec 31

-----------------------------------------------------------------------------------------

Creditors 28,400 30,010

Debtors 32,500 27,800
Stock 25,500 32,200
Loan 65,000 40,000
Building 80,000 80,000
Motor Vehicle at Cost 40,000 40,000
Rates prepaid 1,200 2,200
Commission Due 7,500 8,000
Wages Owing 5,500 7,000

c. Additional data
- provide for depreciation on motor vehicle at 10%
- provide for bad debts at 5%
- bad debts written off during the year 2,300

Required

i. Prepare the working papers leading to a trail balance for the year
ii. Draft the set of final accounts for the year

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