NCERT Textbook - Accounts from Incomplete Records | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year PDF Download

 Page 1


Accounts from Incomplete Records 11
W
e have so far studied accounting records of
firms, which follow the double entry system of
book keeping. This gives us an impression that all
business units follow this system. However, in practice,
all firms do not maintain accounting records strictly as
per the double entry system. Many small size enterprises
keep incomplete records of their transactions. But, they
also have to ascertain the profit or loss for the year
and the financial position of the firm as at the end of
the year. This chapter deals with the ascertainment of
profit or loss and financial position of the firm that have
not been maintaining records as per double entry book-
keeping or whose records are otherwise incomplete.
11.1 Meaning of Incomplete Records
Accounting records, which are not strictly kept
according to double entry system are known as
incomplete records. Many authors describe it as single
entry system. However, single entry system is a
misnomer because there is no such system of
maintaining accounting records. It is also not a
‘short cut’ method as an alternative to double entry
system. It is rather a mechanism of maintaining records
whereby some transactions are recorded with proper
debits and credits while in case of others, either one
sided or no entry is made. Normally, under this system
records of cash and personal accounts of debtors and
creditors are properly maintained, while the
information relating to assets, liabilities, expenses
and revenues is partially recorded. Hence, these are
usually referred as incomplete records.
LEARNING OBJECTIVES
After studying this
chapter, you will be able
to :
• state the meaning and
features of incomplete
records;
• calculate profit or loss
using the statement of
affairs method;
• distinguish between
balance sheet and
statement of affairs;
• prepare trading and
profit and loss account
and balance sheet from
incomplete records;
and
• detect the missing
figures/information by
preparing relevant
accounts.
2022-23
Page 2


Accounts from Incomplete Records 11
W
e have so far studied accounting records of
firms, which follow the double entry system of
book keeping. This gives us an impression that all
business units follow this system. However, in practice,
all firms do not maintain accounting records strictly as
per the double entry system. Many small size enterprises
keep incomplete records of their transactions. But, they
also have to ascertain the profit or loss for the year
and the financial position of the firm as at the end of
the year. This chapter deals with the ascertainment of
profit or loss and financial position of the firm that have
not been maintaining records as per double entry book-
keeping or whose records are otherwise incomplete.
11.1 Meaning of Incomplete Records
Accounting records, which are not strictly kept
according to double entry system are known as
incomplete records. Many authors describe it as single
entry system. However, single entry system is a
misnomer because there is no such system of
maintaining accounting records. It is also not a
‘short cut’ method as an alternative to double entry
system. It is rather a mechanism of maintaining records
whereby some transactions are recorded with proper
debits and credits while in case of others, either one
sided or no entry is made. Normally, under this system
records of cash and personal accounts of debtors and
creditors are properly maintained, while the
information relating to assets, liabilities, expenses
and revenues is partially recorded. Hence, these are
usually referred as incomplete records.
LEARNING OBJECTIVES
After studying this
chapter, you will be able
to :
• state the meaning and
features of incomplete
records;
• calculate profit or loss
using the statement of
affairs method;
• distinguish between
balance sheet and
statement of affairs;
• prepare trading and
profit and loss account
and balance sheet from
incomplete records;
and
• detect the missing
figures/information by
preparing relevant
accounts.
2022-23
426 Accountancy
11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records
Incomplete records may be due to partial recording of transactions as is the
case with small shopkeepers such as grocers and vendors. In case of large
sized organisations, the accounting records may be rendered to the state of
incompleteness due to natural calamity, theft or fire. The features of incomplete
records are as under :
(a) It is an unsystematic method of recording transactions.
(b) Generally, records for cash transactions and personal accounts are
properly maintained and there is no information regarding revenue and/
or gains, expenses and/or losses, assets and liabilities.
(c) Personal transactions of owners may also be recorded in the cash book.
(d) Different organisations maintain records according to their convenience
and needs, and their accounts are not comparable due to lack of
uniformity.
(e) To ascertain profit or loss or for obtaining any other information,
necessary figures can be collected only from the original vouchers such
as sales invoice or purchase invoice, etc. Thus, dependence on original
vouchers is inevitable.
(f) The profit or loss for the year cannot be ascertained under this system
with high degree of accuracy as only an estimate of the profit earned or
loss incurred can be made. The balance sheet also may not reflect the
complete and true position of assets and liabilities.
11.2 Reasons of Incompleteness and Its Limitations
It is observed, that many businessmen keep incomplete records because of the
following reasons :
(a) This system can be adopted by people who do not have the proper
knowledge of accounting principles;
(b) It is an inexpensive mode of maintaining records. Cost involved is low
as specialised accountants are not appointed by the organisations;
(c) Time consumed in maintaining records is less as only a few books are
maintained; and
(d) It is a convenient mode of maintaining records as the owner may record
only important transactions according to the need of the business.
However, the mechanism of incomplete records suffers from a number of
limitations. This is due to the basic nature of this mechanism. Broadly
speaking, unless a systematic approach to maintenance of records is followed,
reliable financial statements cannot be prepared.
2022-23
Page 3


Accounts from Incomplete Records 11
W
e have so far studied accounting records of
firms, which follow the double entry system of
book keeping. This gives us an impression that all
business units follow this system. However, in practice,
all firms do not maintain accounting records strictly as
per the double entry system. Many small size enterprises
keep incomplete records of their transactions. But, they
also have to ascertain the profit or loss for the year
and the financial position of the firm as at the end of
the year. This chapter deals with the ascertainment of
profit or loss and financial position of the firm that have
not been maintaining records as per double entry book-
keeping or whose records are otherwise incomplete.
11.1 Meaning of Incomplete Records
Accounting records, which are not strictly kept
according to double entry system are known as
incomplete records. Many authors describe it as single
entry system. However, single entry system is a
misnomer because there is no such system of
maintaining accounting records. It is also not a
‘short cut’ method as an alternative to double entry
system. It is rather a mechanism of maintaining records
whereby some transactions are recorded with proper
debits and credits while in case of others, either one
sided or no entry is made. Normally, under this system
records of cash and personal accounts of debtors and
creditors are properly maintained, while the
information relating to assets, liabilities, expenses
and revenues is partially recorded. Hence, these are
usually referred as incomplete records.
LEARNING OBJECTIVES
After studying this
chapter, you will be able
to :
• state the meaning and
features of incomplete
records;
• calculate profit or loss
using the statement of
affairs method;
• distinguish between
balance sheet and
statement of affairs;
• prepare trading and
profit and loss account
and balance sheet from
incomplete records;
and
• detect the missing
figures/information by
preparing relevant
accounts.
2022-23
426 Accountancy
11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records
Incomplete records may be due to partial recording of transactions as is the
case with small shopkeepers such as grocers and vendors. In case of large
sized organisations, the accounting records may be rendered to the state of
incompleteness due to natural calamity, theft or fire. The features of incomplete
records are as under :
(a) It is an unsystematic method of recording transactions.
(b) Generally, records for cash transactions and personal accounts are
properly maintained and there is no information regarding revenue and/
or gains, expenses and/or losses, assets and liabilities.
(c) Personal transactions of owners may also be recorded in the cash book.
(d) Different organisations maintain records according to their convenience
and needs, and their accounts are not comparable due to lack of
uniformity.
(e) To ascertain profit or loss or for obtaining any other information,
necessary figures can be collected only from the original vouchers such
as sales invoice or purchase invoice, etc. Thus, dependence on original
vouchers is inevitable.
(f) The profit or loss for the year cannot be ascertained under this system
with high degree of accuracy as only an estimate of the profit earned or
loss incurred can be made. The balance sheet also may not reflect the
complete and true position of assets and liabilities.
11.2 Reasons of Incompleteness and Its Limitations
It is observed, that many businessmen keep incomplete records because of the
following reasons :
(a) This system can be adopted by people who do not have the proper
knowledge of accounting principles;
(b) It is an inexpensive mode of maintaining records. Cost involved is low
as specialised accountants are not appointed by the organisations;
(c) Time consumed in maintaining records is less as only a few books are
maintained; and
(d) It is a convenient mode of maintaining records as the owner may record
only important transactions according to the need of the business.
However, the mechanism of incomplete records suffers from a number of
limitations. This is due to the basic nature of this mechanism. Broadly
speaking, unless a systematic approach to maintenance of records is followed,
reliable financial statements cannot be prepared.
2022-23
427 Accounts from Incomplete Records
The limitations of incomplete records are as follows :
(a) As double entry system is not followed, a trial balance cannot be prepared
and accuracy of accounts cannot be ensured.
(b) Correct ascertainment and evaluation of financial result of business
operations can not be made.
(c) Analysis of profitability, liquidity and solvency of the business cannot
be done.  This may cause a problem in raising funds from outsiders and
planning future business activities.
(d) The owners face great difficulty in filing an insurance claim with an
insurance company in case of loss of inventory by fire or theft.
(e) It becomes difficult to convince the income tax authorities about the
reliability of the computed income.
11.3 Ascertainment of Profit or Loss
Every business firm wishes to ascertain the results of its operations to assess its
efficiency and success and failures. This gives rise to the need for preparing the
financial statements to disclose:
(a) the profit made or loss sustained by the firm during a given period; and
(b) the amount of assets and liabilities as at the closing date of the accounting
period.
Therefore, the problem faced in this situation is how to use the available
information in the incomplete records to ascertain the profit or loss for the
particular accounting year and to determine the financial position of a entity
as at the end of the year. This can be done in two ways :
1. Preparing the Statement of Affairs as at the beginning and as at the end
of the accounting period, called statement of affairs or net worth method.
2. Preparing Trading and Profit and Loss Account and the Balance Sheet
by putting  the accounting records in proper order, called conversion
method.
11.3.1 11.3.1 11.3.1 11.3.1 11.3.1 Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs
Under this method, statement of asset and liabilities as at the beginning and at
the end of the relevant accounting period are prepared to ascertain the amount
of change in the capital during the period. Such a statement is known as
statement of affairs, shows assets on one side and the liabilities on the other just
as in case of a balance sheet. The difference between the totals of the two sides
(balancing figure) is the capital (refer figure 11.1). Though statement of affairs
resembles balance sheet, it is not called a balance sheet because the data is not
wholly based on ledger balances. The amount of items like fixed assets,
outstanding expenses, bank balances, etc. are ascertained from the relevant
documents and physical count.
2022-23
Page 4


Accounts from Incomplete Records 11
W
e have so far studied accounting records of
firms, which follow the double entry system of
book keeping. This gives us an impression that all
business units follow this system. However, in practice,
all firms do not maintain accounting records strictly as
per the double entry system. Many small size enterprises
keep incomplete records of their transactions. But, they
also have to ascertain the profit or loss for the year
and the financial position of the firm as at the end of
the year. This chapter deals with the ascertainment of
profit or loss and financial position of the firm that have
not been maintaining records as per double entry book-
keeping or whose records are otherwise incomplete.
11.1 Meaning of Incomplete Records
Accounting records, which are not strictly kept
according to double entry system are known as
incomplete records. Many authors describe it as single
entry system. However, single entry system is a
misnomer because there is no such system of
maintaining accounting records. It is also not a
‘short cut’ method as an alternative to double entry
system. It is rather a mechanism of maintaining records
whereby some transactions are recorded with proper
debits and credits while in case of others, either one
sided or no entry is made. Normally, under this system
records of cash and personal accounts of debtors and
creditors are properly maintained, while the
information relating to assets, liabilities, expenses
and revenues is partially recorded. Hence, these are
usually referred as incomplete records.
LEARNING OBJECTIVES
After studying this
chapter, you will be able
to :
• state the meaning and
features of incomplete
records;
• calculate profit or loss
using the statement of
affairs method;
• distinguish between
balance sheet and
statement of affairs;
• prepare trading and
profit and loss account
and balance sheet from
incomplete records;
and
• detect the missing
figures/information by
preparing relevant
accounts.
2022-23
426 Accountancy
11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records
Incomplete records may be due to partial recording of transactions as is the
case with small shopkeepers such as grocers and vendors. In case of large
sized organisations, the accounting records may be rendered to the state of
incompleteness due to natural calamity, theft or fire. The features of incomplete
records are as under :
(a) It is an unsystematic method of recording transactions.
(b) Generally, records for cash transactions and personal accounts are
properly maintained and there is no information regarding revenue and/
or gains, expenses and/or losses, assets and liabilities.
(c) Personal transactions of owners may also be recorded in the cash book.
(d) Different organisations maintain records according to their convenience
and needs, and their accounts are not comparable due to lack of
uniformity.
(e) To ascertain profit or loss or for obtaining any other information,
necessary figures can be collected only from the original vouchers such
as sales invoice or purchase invoice, etc. Thus, dependence on original
vouchers is inevitable.
(f) The profit or loss for the year cannot be ascertained under this system
with high degree of accuracy as only an estimate of the profit earned or
loss incurred can be made. The balance sheet also may not reflect the
complete and true position of assets and liabilities.
11.2 Reasons of Incompleteness and Its Limitations
It is observed, that many businessmen keep incomplete records because of the
following reasons :
(a) This system can be adopted by people who do not have the proper
knowledge of accounting principles;
(b) It is an inexpensive mode of maintaining records. Cost involved is low
as specialised accountants are not appointed by the organisations;
(c) Time consumed in maintaining records is less as only a few books are
maintained; and
(d) It is a convenient mode of maintaining records as the owner may record
only important transactions according to the need of the business.
However, the mechanism of incomplete records suffers from a number of
limitations. This is due to the basic nature of this mechanism. Broadly
speaking, unless a systematic approach to maintenance of records is followed,
reliable financial statements cannot be prepared.
2022-23
427 Accounts from Incomplete Records
The limitations of incomplete records are as follows :
(a) As double entry system is not followed, a trial balance cannot be prepared
and accuracy of accounts cannot be ensured.
(b) Correct ascertainment and evaluation of financial result of business
operations can not be made.
(c) Analysis of profitability, liquidity and solvency of the business cannot
be done.  This may cause a problem in raising funds from outsiders and
planning future business activities.
(d) The owners face great difficulty in filing an insurance claim with an
insurance company in case of loss of inventory by fire or theft.
(e) It becomes difficult to convince the income tax authorities about the
reliability of the computed income.
11.3 Ascertainment of Profit or Loss
Every business firm wishes to ascertain the results of its operations to assess its
efficiency and success and failures. This gives rise to the need for preparing the
financial statements to disclose:
(a) the profit made or loss sustained by the firm during a given period; and
(b) the amount of assets and liabilities as at the closing date of the accounting
period.
Therefore, the problem faced in this situation is how to use the available
information in the incomplete records to ascertain the profit or loss for the
particular accounting year and to determine the financial position of a entity
as at the end of the year. This can be done in two ways :
1. Preparing the Statement of Affairs as at the beginning and as at the end
of the accounting period, called statement of affairs or net worth method.
2. Preparing Trading and Profit and Loss Account and the Balance Sheet
by putting  the accounting records in proper order, called conversion
method.
11.3.1 11.3.1 11.3.1 11.3.1 11.3.1 Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs
Under this method, statement of asset and liabilities as at the beginning and at
the end of the relevant accounting period are prepared to ascertain the amount
of change in the capital during the period. Such a statement is known as
statement of affairs, shows assets on one side and the liabilities on the other just
as in case of a balance sheet. The difference between the totals of the two sides
(balancing figure) is the capital (refer figure 11.1). Though statement of affairs
resembles balance sheet, it is not called a balance sheet because the data is not
wholly based on ledger balances. The amount of items like fixed assets,
outstanding expenses, bank balances, etc. are ascertained from the relevant
documents and physical count.
2022-23
428 Accountancy
Statement of Affairs as at ––
Liabilities Amount Assets Amount
` `
Bills payable ´´´´ Land and Building ´´´´
Creditors ´´´´ Machinery ´´´´
Outstanding expenses ´´´´ Furniture ´´´´
Capital (balancing figure)* ´´´´ Stock ´´´´
Debtors ´´´´
Cash and Bank ´´´´
Prepaid expenses ´´´´
Capital (balancing figure)* ´´´´
xxx x xxxx
Note: * * * * * where the total of liabilities side is more than total of assets side, capital would be
shown in assets side and it represents debit balance of capital.
Fig. 11.1 : Format of statement of affairs
Once the amount of capital, both at the beginning and at the end is
computed with the help of statement of affairs, a statement of profit and loss
is prepared to ascertain the exact amount of profit or loss made during the
year. The difference between the opening and closing capital represents its
increase or decrease which is to be adjusted for withdrawals made by the
owner or any fresh capital introduced by him during the accounting period in
order to arrive at the amount of profit or loss made during the period.
The statement of profit and loss is prepared as shown in figure 11.2.
Statement of Profit or Loss for the year ended ........
Particulars Amount
`
Capital as at the end of year (computed from statement of affairs .....
as at the end of year)
Add Drawings during the year
.....
Less Additional capital introduced during the year (
.....
)
Adjusted capital at the end of year .....
Less Capital as at the beginning of year (computed from statement of (
.....
)
affairs as at the beginning of year)
Profit or Loss made during the year
.....
Fig. 11.2 : Format of statement of profit or loss
2022-23
Page 5


Accounts from Incomplete Records 11
W
e have so far studied accounting records of
firms, which follow the double entry system of
book keeping. This gives us an impression that all
business units follow this system. However, in practice,
all firms do not maintain accounting records strictly as
per the double entry system. Many small size enterprises
keep incomplete records of their transactions. But, they
also have to ascertain the profit or loss for the year
and the financial position of the firm as at the end of
the year. This chapter deals with the ascertainment of
profit or loss and financial position of the firm that have
not been maintaining records as per double entry book-
keeping or whose records are otherwise incomplete.
11.1 Meaning of Incomplete Records
Accounting records, which are not strictly kept
according to double entry system are known as
incomplete records. Many authors describe it as single
entry system. However, single entry system is a
misnomer because there is no such system of
maintaining accounting records. It is also not a
‘short cut’ method as an alternative to double entry
system. It is rather a mechanism of maintaining records
whereby some transactions are recorded with proper
debits and credits while in case of others, either one
sided or no entry is made. Normally, under this system
records of cash and personal accounts of debtors and
creditors are properly maintained, while the
information relating to assets, liabilities, expenses
and revenues is partially recorded. Hence, these are
usually referred as incomplete records.
LEARNING OBJECTIVES
After studying this
chapter, you will be able
to :
• state the meaning and
features of incomplete
records;
• calculate profit or loss
using the statement of
affairs method;
• distinguish between
balance sheet and
statement of affairs;
• prepare trading and
profit and loss account
and balance sheet from
incomplete records;
and
• detect the missing
figures/information by
preparing relevant
accounts.
2022-23
426 Accountancy
11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records 11.1.1 Features of Incomplete Records
Incomplete records may be due to partial recording of transactions as is the
case with small shopkeepers such as grocers and vendors. In case of large
sized organisations, the accounting records may be rendered to the state of
incompleteness due to natural calamity, theft or fire. The features of incomplete
records are as under :
(a) It is an unsystematic method of recording transactions.
(b) Generally, records for cash transactions and personal accounts are
properly maintained and there is no information regarding revenue and/
or gains, expenses and/or losses, assets and liabilities.
(c) Personal transactions of owners may also be recorded in the cash book.
(d) Different organisations maintain records according to their convenience
and needs, and their accounts are not comparable due to lack of
uniformity.
(e) To ascertain profit or loss or for obtaining any other information,
necessary figures can be collected only from the original vouchers such
as sales invoice or purchase invoice, etc. Thus, dependence on original
vouchers is inevitable.
(f) The profit or loss for the year cannot be ascertained under this system
with high degree of accuracy as only an estimate of the profit earned or
loss incurred can be made. The balance sheet also may not reflect the
complete and true position of assets and liabilities.
11.2 Reasons of Incompleteness and Its Limitations
It is observed, that many businessmen keep incomplete records because of the
following reasons :
(a) This system can be adopted by people who do not have the proper
knowledge of accounting principles;
(b) It is an inexpensive mode of maintaining records. Cost involved is low
as specialised accountants are not appointed by the organisations;
(c) Time consumed in maintaining records is less as only a few books are
maintained; and
(d) It is a convenient mode of maintaining records as the owner may record
only important transactions according to the need of the business.
However, the mechanism of incomplete records suffers from a number of
limitations. This is due to the basic nature of this mechanism. Broadly
speaking, unless a systematic approach to maintenance of records is followed,
reliable financial statements cannot be prepared.
2022-23
427 Accounts from Incomplete Records
The limitations of incomplete records are as follows :
(a) As double entry system is not followed, a trial balance cannot be prepared
and accuracy of accounts cannot be ensured.
(b) Correct ascertainment and evaluation of financial result of business
operations can not be made.
(c) Analysis of profitability, liquidity and solvency of the business cannot
be done.  This may cause a problem in raising funds from outsiders and
planning future business activities.
(d) The owners face great difficulty in filing an insurance claim with an
insurance company in case of loss of inventory by fire or theft.
(e) It becomes difficult to convince the income tax authorities about the
reliability of the computed income.
11.3 Ascertainment of Profit or Loss
Every business firm wishes to ascertain the results of its operations to assess its
efficiency and success and failures. This gives rise to the need for preparing the
financial statements to disclose:
(a) the profit made or loss sustained by the firm during a given period; and
(b) the amount of assets and liabilities as at the closing date of the accounting
period.
Therefore, the problem faced in this situation is how to use the available
information in the incomplete records to ascertain the profit or loss for the
particular accounting year and to determine the financial position of a entity
as at the end of the year. This can be done in two ways :
1. Preparing the Statement of Affairs as at the beginning and as at the end
of the accounting period, called statement of affairs or net worth method.
2. Preparing Trading and Profit and Loss Account and the Balance Sheet
by putting  the accounting records in proper order, called conversion
method.
11.3.1 11.3.1 11.3.1 11.3.1 11.3.1 Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs Preparing Statement of Affairs
Under this method, statement of asset and liabilities as at the beginning and at
the end of the relevant accounting period are prepared to ascertain the amount
of change in the capital during the period. Such a statement is known as
statement of affairs, shows assets on one side and the liabilities on the other just
as in case of a balance sheet. The difference between the totals of the two sides
(balancing figure) is the capital (refer figure 11.1). Though statement of affairs
resembles balance sheet, it is not called a balance sheet because the data is not
wholly based on ledger balances. The amount of items like fixed assets,
outstanding expenses, bank balances, etc. are ascertained from the relevant
documents and physical count.
2022-23
428 Accountancy
Statement of Affairs as at ––
Liabilities Amount Assets Amount
` `
Bills payable ´´´´ Land and Building ´´´´
Creditors ´´´´ Machinery ´´´´
Outstanding expenses ´´´´ Furniture ´´´´
Capital (balancing figure)* ´´´´ Stock ´´´´
Debtors ´´´´
Cash and Bank ´´´´
Prepaid expenses ´´´´
Capital (balancing figure)* ´´´´
xxx x xxxx
Note: * * * * * where the total of liabilities side is more than total of assets side, capital would be
shown in assets side and it represents debit balance of capital.
Fig. 11.1 : Format of statement of affairs
Once the amount of capital, both at the beginning and at the end is
computed with the help of statement of affairs, a statement of profit and loss
is prepared to ascertain the exact amount of profit or loss made during the
year. The difference between the opening and closing capital represents its
increase or decrease which is to be adjusted for withdrawals made by the
owner or any fresh capital introduced by him during the accounting period in
order to arrive at the amount of profit or loss made during the period.
The statement of profit and loss is prepared as shown in figure 11.2.
Statement of Profit or Loss for the year ended ........
Particulars Amount
`
Capital as at the end of year (computed from statement of affairs .....
as at the end of year)
Add Drawings during the year
.....
Less Additional capital introduced during the year (
.....
)
Adjusted capital at the end of year .....
Less Capital as at the beginning of year (computed from statement of (
.....
)
affairs as at the beginning of year)
Profit or Loss made during the year
.....
Fig. 11.2 : Format of statement of profit or loss
2022-23
429 Accounts from Incomplete Records
If the net result of above computation is a positive amount, it represents the
profit earned during the year. In case the net result is a negative amount, it
would represent the loss sustained during the year. The same computation can
be done in the form of an equation as follows :
Profit or Loss = Capital at end – Capital at beginning + Drawings during the year
– Capital introduced during the year.
For example, consider the following information extracted from the records of Ms. Sheetu :
`
Capital at the beginning of year, i.e. April 01, 2016 1,20,000
Capital at the end of year, i.e. on March 31, 2017 2,00,000
Capital brought in by the proprietor during the year 50,000
Withdrawals by the proprietor during the year 30,000
The profit for the year will be calculated as follows :
The profit earned or loss incurred during a given period will be computed as follows :
Particulars Amount
`
Capital as on March 31, 2017 2,00,000
Add Drawings during the year 30,000
2,30,000
Less Additional capital introduced during the year (50,000)
Adjusted capital at the end, i.e. March 31, 2017 1,80,000
Less Capital in the beginning, i.e. April 01, 2016 (1,20,000)
Profit made during the year 60,000
Illustration 1
Mr. Mehta started his readymade garments business on April 1, 2016 with a capital of
` 50,000.  He did not maintain his books according to double entry system.  During the
year he introduced fresh capital of ` 15,000.  He withdrew ` 10,000 for personal use. On
March 31, 2017, his assets and liabilities were as follows :
Total creditors ` 90,000 ; Total debtors ` 1,25,600 ; Stock ` 24,750 ; Cash at bank
` 24,980.
Calculate profit or loss made by Mr. Mehta during the first year of his business using the
statement of affairs method.
Solution
Books of Mr. Mehta
Statement of Affairs as on March 31, 2017
Liabilities Amount Assets Amount
` `
Creditors 90,000 Cash at bank 24,980
Capital 85,330 Debtors 1,25,600
(balancing figure) Stock 24,750
1,75,330 1,75,330
2022-23