Accounts from Incomplete Records: Notes | Principles and Practice of Accounting - CA Foundation PDF Download

 Page 1


 
LEARNING OUTCOMES 
  
 
 
 
ACCOUNTS FROM  
INCOMPLETE RECORDS 
 
 
 
After studying this chapter, you will be able to– 
? Learn how to derive capitals at two different points of time 
through statement of affairs. 
? Learn the technique of determining profit by comparing 
capital at two different points of time. 
? Prepare trading and profit and loss account and balance 
sheet from incomplete records. 
 
 
 
 
 
 
 
14 
CHAPTER 
Page 2


 
LEARNING OUTCOMES 
  
 
 
 
ACCOUNTS FROM  
INCOMPLETE RECORDS 
 
 
 
After studying this chapter, you will be able to– 
? Learn how to derive capitals at two different points of time 
through statement of affairs. 
? Learn the technique of determining profit by comparing 
capital at two different points of time. 
? Prepare trading and profit and loss account and balance 
sheet from incomplete records. 
 
 
 
 
 
 
 
14 
CHAPTER 
 
 
14.2 
 
ACCOUNTING 
 
 
 
 
Definition of Single Entry System and its features
Types of Single entry system 
Determination of profit by comparing capitals at different points of 
time
Statement of Affairs and its comparison with Balance sheet 
Technique of obtaining complete information for  Preparation of 
financial statements  
Incomplete 
books of 
accounts 
Completion of  
double entry 
in all 
transactions
Accounting 
process
Preparation of  
Trial Balance 
Preparation of   
Financial 
statements
 
Page 3


 
LEARNING OUTCOMES 
  
 
 
 
ACCOUNTS FROM  
INCOMPLETE RECORDS 
 
 
 
After studying this chapter, you will be able to– 
? Learn how to derive capitals at two different points of time 
through statement of affairs. 
? Learn the technique of determining profit by comparing 
capital at two different points of time. 
? Prepare trading and profit and loss account and balance 
sheet from incomplete records. 
 
 
 
 
 
 
 
14 
CHAPTER 
 
 
14.2 
 
ACCOUNTING 
 
 
 
 
Definition of Single Entry System and its features
Types of Single entry system 
Determination of profit by comparing capitals at different points of 
time
Statement of Affairs and its comparison with Balance sheet 
Technique of obtaining complete information for  Preparation of 
financial statements  
Incomplete 
books of 
accounts 
Completion of  
double entry 
in all 
transactions
Accounting 
process
Preparation of  
Trial Balance 
Preparation of   
Financial 
statements
 
 
 
14.3 
 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
 
 
 1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain 
double entry book keeping system. They keep a record of the cash transactions and 
credit transactions only. But at the end of the accounting period, they will want to 
know the performance and financial position of their businesses. This creates some 
Techniques 
of obtaining 
complete 
accounting 
information
General 
Techniques
Derivation of 
Information 
from Cash 
Book
Analysis of 
Sales Ledger 
and Purchase 
Ledger
Distinction 
between 
Business 
Expenses and 
Drawings
Fresh 
Investment by 
proprietors/
partners
Page 4


 
LEARNING OUTCOMES 
  
 
 
 
ACCOUNTS FROM  
INCOMPLETE RECORDS 
 
 
 
After studying this chapter, you will be able to– 
? Learn how to derive capitals at two different points of time 
through statement of affairs. 
? Learn the technique of determining profit by comparing 
capital at two different points of time. 
? Prepare trading and profit and loss account and balance 
sheet from incomplete records. 
 
 
 
 
 
 
 
14 
CHAPTER 
 
 
14.2 
 
ACCOUNTING 
 
 
 
 
Definition of Single Entry System and its features
Types of Single entry system 
Determination of profit by comparing capitals at different points of 
time
Statement of Affairs and its comparison with Balance sheet 
Technique of obtaining complete information for  Preparation of 
financial statements  
Incomplete 
books of 
accounts 
Completion of  
double entry 
in all 
transactions
Accounting 
process
Preparation of  
Trial Balance 
Preparation of   
Financial 
statements
 
 
 
14.3 
 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
 
 
 1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain 
double entry book keeping system. They keep a record of the cash transactions and 
credit transactions only. But at the end of the accounting period, they will want to 
know the performance and financial position of their businesses. This creates some 
Techniques 
of obtaining 
complete 
accounting 
information
General 
Techniques
Derivation of 
Information 
from Cash 
Book
Analysis of 
Sales Ledger 
and Purchase 
Ledger
Distinction 
between 
Business 
Expenses and 
Drawings
Fresh 
Investment by 
proprietors/
partners
 
 
14.4 
 
ACCOUNTING 
special problems to the accountants. This chapter discusses how to complete the 
accounts from available incomplete records and addresses the problems faced in a 
single entry system. 
The term “Single Entry System” is popularly used to describe the problems of 
accounts from incomplete records. In practice, quack accountants follow some 
hybrid methods. For some transactions they complete double entries and for some 
others they complete just one aspect of the transaction. In fact, for some other 
transactions, they even do not pass any entry. Briefly, this may be stated as 
incomplete records. The task of the accountant is to establish link among the 
available information and to finalize these accounts. 
Features 
• It is an inaccurate, unscientific and unsystematic method of recording 
business transactions. 
• There is generally no record of real and nominal accounts and, in most of the 
cases; a record is kept for cash transactions and personal accounts. 
• Cash book mixes up business and personal transactions of the owners. 
• There is no uniformity in maintaining the records and the system may differ 
from firm to firm depending on the requirements and convenience of each 
firm. 
• Profit under this system is only an estimate based on available information 
and therefore true and correct profits cannot be determined. The same is the 
case with the financial position in the absence of a proper balance sheet. 
 2. TYPES 
A scrutiny of many procedures adopted in maintaining records under single entry 
system brings forth the existence of following three types: 
(i) Pure single entry: In this, only personal accounts are maintained with the 
result that no information is available in respect of cash and bank balances, 
sales and purchases, etc. In view of its failure to provide even the basic 
information regarding cash etc., this method exists only on paper and has no 
practical application. 
(ii) Simple single entry: In this, only: (a) personal accounts, and (b) cash book 
are maintained. Although these accounts are kept on the basis of double 
entry system, postings from cash book are made only to personal accounts 
Page 5


 
LEARNING OUTCOMES 
  
 
 
 
ACCOUNTS FROM  
INCOMPLETE RECORDS 
 
 
 
After studying this chapter, you will be able to– 
? Learn how to derive capitals at two different points of time 
through statement of affairs. 
? Learn the technique of determining profit by comparing 
capital at two different points of time. 
? Prepare trading and profit and loss account and balance 
sheet from incomplete records. 
 
 
 
 
 
 
 
14 
CHAPTER 
 
 
14.2 
 
ACCOUNTING 
 
 
 
 
Definition of Single Entry System and its features
Types of Single entry system 
Determination of profit by comparing capitals at different points of 
time
Statement of Affairs and its comparison with Balance sheet 
Technique of obtaining complete information for  Preparation of 
financial statements  
Incomplete 
books of 
accounts 
Completion of  
double entry 
in all 
transactions
Accounting 
process
Preparation of  
Trial Balance 
Preparation of   
Financial 
statements
 
 
 
14.3 
 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
 
 
 1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain 
double entry book keeping system. They keep a record of the cash transactions and 
credit transactions only. But at the end of the accounting period, they will want to 
know the performance and financial position of their businesses. This creates some 
Techniques 
of obtaining 
complete 
accounting 
information
General 
Techniques
Derivation of 
Information 
from Cash 
Book
Analysis of 
Sales Ledger 
and Purchase 
Ledger
Distinction 
between 
Business 
Expenses and 
Drawings
Fresh 
Investment by 
proprietors/
partners
 
 
14.4 
 
ACCOUNTING 
special problems to the accountants. This chapter discusses how to complete the 
accounts from available incomplete records and addresses the problems faced in a 
single entry system. 
The term “Single Entry System” is popularly used to describe the problems of 
accounts from incomplete records. In practice, quack accountants follow some 
hybrid methods. For some transactions they complete double entries and for some 
others they complete just one aspect of the transaction. In fact, for some other 
transactions, they even do not pass any entry. Briefly, this may be stated as 
incomplete records. The task of the accountant is to establish link among the 
available information and to finalize these accounts. 
Features 
• It is an inaccurate, unscientific and unsystematic method of recording 
business transactions. 
• There is generally no record of real and nominal accounts and, in most of the 
cases; a record is kept for cash transactions and personal accounts. 
• Cash book mixes up business and personal transactions of the owners. 
• There is no uniformity in maintaining the records and the system may differ 
from firm to firm depending on the requirements and convenience of each 
firm. 
• Profit under this system is only an estimate based on available information 
and therefore true and correct profits cannot be determined. The same is the 
case with the financial position in the absence of a proper balance sheet. 
 2. TYPES 
A scrutiny of many procedures adopted in maintaining records under single entry 
system brings forth the existence of following three types: 
(i) Pure single entry: In this, only personal accounts are maintained with the 
result that no information is available in respect of cash and bank balances, 
sales and purchases, etc. In view of its failure to provide even the basic 
information regarding cash etc., this method exists only on paper and has no 
practical application. 
(ii) Simple single entry: In this, only: (a) personal accounts, and (b) cash book 
are maintained. Although these accounts are kept on the basis of double 
entry system, postings from cash book are made only to personal accounts 
 
 
14.5 
 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
with no other account to be found in the ledger. Cash received from debtors 
or cash paid to creditors is simply noted on the bills issued or received as the 
case may be. 
(iii) Quasi single entry: In this: (a) personal accounts, (b) cash book, and (c) some 
subsidiary books are maintained. The main subsidiary books kept under this 
system are Sales book, Purchases book and Bills book. No separate record is 
maintained for discounts, which are entered into the personal accounts. In 
addition, some scattered information is also available in respect of few 
important items of expenses like wages, rent, rates, etc. In fact, this is the 
method which is generally adopted as a substitute for double entry system. 
 
 3. ASCERTAINMENT OF PROFIT BY CAPITAL 
COMPARISON 
This method is also known as Net Worth method or Statement of Affairs 
Method. 
 
 
Types of single entry system
Pure single entry
Only personal 
accounts are 
maintained
Simple single entry
Personal accounts 
and cash book are 
maintained
Quasi single entry
Personal accounts, 
cash book and 
subsidiary books are 
maintained
Net Worth 
method or 
Statement 
of Affairs 
Method.
Profit
/ 
(Loss)
Closing 
Capital 
Less
Opening 
Capital