Download, print and study this document offline |
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 CapitalRead More
68 videos|160 docs|83 tests
|
1. What is meant by accounts from incomplete records? |
2. Why do businesses sometimes maintain incomplete records? |
3. What are the challenges faced when dealing with accounts from incomplete records? |
4. How can accounts from incomplete records be reconstructed? |
5. What are the limitations of using accounts from incomplete records? |
|
Explore Courses for CA Foundation exam
|