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

 Page 1


LEARNING OUTCOMES 
 
 ACCOUNTS FROM  
 INCOMPLETE RECORDS  
 
 
 
 
 
After studying this Chapter, you would 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. 
  
9 
CHAPTER
9
9
CHAPTER 
   
© The Institute of Chartered Accountants of India
Page 2


LEARNING OUTCOMES 
 
 ACCOUNTS FROM  
 INCOMPLETE RECORDS  
 
 
 
 
 
After studying this Chapter, you would 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. 
  
9 
CHAPTER
9
9
CHAPTER 
   
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.2 
 
9.2 
 
 
 
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
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
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


LEARNING OUTCOMES 
 
 ACCOUNTS FROM  
 INCOMPLETE RECORDS  
 
 
 
 
 
After studying this Chapter, you would 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. 
  
9 
CHAPTER
9
9
CHAPTER 
   
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.2 
 
9.2 
 
 
 
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
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
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
    
9.3 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain double entry 
book keeping. There might be reasons like lack of knowledge of accounting, or the business 
is small and they do not wish to spend time or effort in maintaining the accounting records. 
As such, they might 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. Think of a grocery-vendor who sells vegetables on a street or 
runs a small shop. Is he expected to learn accounting formally? No, he is only looking at 
keeping a record of a few items including: 
-  What amount is he supposed to pay for items purchased on credit from his supplier? 
-  What cash has he collected by selling those vegetables? 
- In case he runs a shop, how much amount has he paid for rent or electricity expenses? 
-  In case he sells some items on credit, how much is he supposed to receive from that 
customer? 
There might be other reasons for incomplete records such as: 
-  Accounting records are destroyed by accident, such as fire;  
-  Some essential figure is unknown and must be calculated as a balancing figure (for 
example, due to inventory being damaged or destroyed). 
Every person would like to know the profit generated by the business. What we expect to 
learn is how to use those records to arrive at the profit or loss earned by the business or 
understand the financial position of that business. 
This chapter discusses how to complete the accounts from available incomplete records and 
addresses the problems faced in a single-entry system. 
Sources
utilized by
Accountant
• Collection of necessary information
about assets and liabilities
Derivation of
opening and
closing
capitals
• Statement of Affairs at different points of
time
© The Institute of Chartered Accountants of India
Page 4


LEARNING OUTCOMES 
 
 ACCOUNTS FROM  
 INCOMPLETE RECORDS  
 
 
 
 
 
After studying this Chapter, you would 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. 
  
9 
CHAPTER
9
9
CHAPTER 
   
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.2 
 
9.2 
 
 
 
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
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
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
    
9.3 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain double entry 
book keeping. There might be reasons like lack of knowledge of accounting, or the business 
is small and they do not wish to spend time or effort in maintaining the accounting records. 
As such, they might 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. Think of a grocery-vendor who sells vegetables on a street or 
runs a small shop. Is he expected to learn accounting formally? No, he is only looking at 
keeping a record of a few items including: 
-  What amount is he supposed to pay for items purchased on credit from his supplier? 
-  What cash has he collected by selling those vegetables? 
- In case he runs a shop, how much amount has he paid for rent or electricity expenses? 
-  In case he sells some items on credit, how much is he supposed to receive from that 
customer? 
There might be other reasons for incomplete records such as: 
-  Accounting records are destroyed by accident, such as fire;  
-  Some essential figure is unknown and must be calculated as a balancing figure (for 
example, due to inventory being damaged or destroyed). 
Every person would like to know the profit generated by the business. What we expect to 
learn is how to use those records to arrive at the profit or loss earned by the business or 
understand the financial position of that business. 
This chapter discusses how to complete the accounts from available incomplete records and 
addresses the problems faced in a single-entry system. 
Sources
utilized by
Accountant
• Collection of necessary information
about assets and liabilities
Derivation of
opening and
closing
capitals
• Statement of Affairs at different points of
time
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.4 
 
9.4 
There is no such formal system as Single-Entry System as the accounts can only be prepared 
using Double Entry System. It might be appropriate to mention that a single-entry system is 
truly a system of incomplete or improper records. 
The way “Single Entry System” operates is that for some transactions the book-keepers  
complete 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. The task of the accountant is to 
establish link among the available information and to finalize these accounts. 
Normally, the businessmen keep a record of cash receipts and cash payments and personal 
accounts (receivables, payables, capital etc.) Also, information from bank statement 
(withdrawals, deposits) is easily available as well.   
Features of Single Entry System 
• 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 OF SINGLE ENTRY SYSTEM 
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 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. 
© The Institute of Chartered Accountants of India
Page 5


LEARNING OUTCOMES 
 
 ACCOUNTS FROM  
 INCOMPLETE RECORDS  
 
 
 
 
 
After studying this Chapter, you would 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. 
  
9 
CHAPTER
9
9
CHAPTER 
   
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.2 
 
9.2 
 
 
 
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
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
CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
    
9.3 
ACCOUNTS FROM INCOMPLETE RECORDS 
 
1. INTRODUCTION  
Very often small sole proprietorship and partnership businesses do not maintain double entry 
book keeping. There might be reasons like lack of knowledge of accounting, or the business 
is small and they do not wish to spend time or effort in maintaining the accounting records. 
As such, they might 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. Think of a grocery-vendor who sells vegetables on a street or 
runs a small shop. Is he expected to learn accounting formally? No, he is only looking at 
keeping a record of a few items including: 
-  What amount is he supposed to pay for items purchased on credit from his supplier? 
-  What cash has he collected by selling those vegetables? 
- In case he runs a shop, how much amount has he paid for rent or electricity expenses? 
-  In case he sells some items on credit, how much is he supposed to receive from that 
customer? 
There might be other reasons for incomplete records such as: 
-  Accounting records are destroyed by accident, such as fire;  
-  Some essential figure is unknown and must be calculated as a balancing figure (for 
example, due to inventory being damaged or destroyed). 
Every person would like to know the profit generated by the business. What we expect to 
learn is how to use those records to arrive at the profit or loss earned by the business or 
understand the financial position of that business. 
This chapter discusses how to complete the accounts from available incomplete records and 
addresses the problems faced in a single-entry system. 
Sources
utilized by
Accountant
• Collection of necessary information
about assets and liabilities
Derivation of
opening and
closing
capitals
• Statement of Affairs at different points of
time
© The Institute of Chartered Accountants of India
  
 
ACCOUNTING 
1.4 
 
9.4 
There is no such formal system as Single-Entry System as the accounts can only be prepared 
using Double Entry System. It might be appropriate to mention that a single-entry system is 
truly a system of incomplete or improper records. 
The way “Single Entry System” operates is that for some transactions the book-keepers  
complete 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. The task of the accountant is to 
establish link among the available information and to finalize these accounts. 
Normally, the businessmen keep a record of cash receipts and cash payments and personal 
accounts (receivables, payables, capital etc.) Also, information from bank statement 
(withdrawals, deposits) is easily available as well.   
Features of Single Entry System 
• 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 OF SINGLE ENTRY SYSTEM 
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 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. 
© The Institute of Chartered Accountants of India
 
 
    
9.5 
ACCOUNTS FROM INCOMPLETE RECORDS 
For example, M/s Small shop runs a retail shop. It keeps a register of amount receivable 
from people for items sold (bread, butter, milk etc). as under: 
Mr. A – ` 300 
Mr. B – ` 450 
Mr. C – ` 260. 
The business does not maintain a record of what item has been sold. It is only 
concerned about the amount receivable (personal account balance) from its customers. 
(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. 
Some businesses may also maintain additional records like Bills book or Sales book. 
This might be required for tax or other purposes. For example, a shop selling t-shirts 
may want to issue a bill to each customer for the sales made to them. This will help 
them validate any returns of goods within reasonable time. In addition, they may keep 
a purchase book to record all purchases. 
Also, organisations employing workers keep records of cash wages paid and take 
acceptance from the workers for the amount paid to them. 
 
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
© The Institute of Chartered Accountants of India