ACCOUNTS FROM INCOMPLETE RECORDS
After studying this lessons you will be able to:
Some small size business entities do not follow the double entry system of maintaining the accounting records instead they maintains books of accounts under the system Accounting from incomplete records. The system in which no set rules of double entry system are followed is called Accounts from incomplete records. Sometimes, it is also termed as 'Single Entry System'
Under this system only the following accounts are maintained:
Note: Nominal accounts are not maintained underthis system.
Under this system of maintaining accounts:
Points to remember
Uses of Incomplete Records
Books according to this system can be maintained only by those small entities in the form of sole Proprietorship or Partnership firms that are not bound to keep records of business transactions as per double entry system. Companies cannot maintain books underthis system because of legal provisions.
Uses of Reasons for keeping incomplete Records
Limitations of Incomplete Records
Distinction between Single Entry System and Double Entry System
Points of Distinction
Double entry system
Incomplete Records system
Both aspects of transactions are recorded.
One aspect of transactions is recorded.
(ii) Types of Accounts
All the three types of accounts personal real and nominal are prepared.
Only personal and cash accounts are prepred.
(iii) Trial Balance
Trail balance is prepared.
Trial balance cannot be prepared.
(iv) Profit & loss
Profit is ascertained by preparing profit and Loss Account.
It is not possible to prepare Profit and Loss Account. Profit is calculated by preparing Statement of profit.
(v) Financial Position
Balance Sheet is prepared to ascertain financial position.
Balance Sheet is not prepared. Statement of affairs gives a rough idea of financial position.
Accounting records are treated as proof in the Court of Law.
Accounting record are not treated as proof in the court of Law.
(vii) Tax Authorities
Tax authorities recognise this system.
Tax authorities do not recognise this system.
It is suitable in all the cases.
It is suitable only in case of small business houses.
Ascertainment of Profit or Loss
The main objective of any business enterprise is to earn profits. In case of organization maintaining accounts under incomplete records the amount of profit or loss can be ascertained by following two method
Statement of Affairs Method
Under this method, Profits or losses of the business are ascertained by comparing the Capital at the end and Capital at the beginning of the accounting period.
Losses = Opening Capital - Closing Capital
Capital at the beginning is calculated by preparing an 'Opening statement of Affairs' and similarly, capital at the end is calculated by preparing a 'Closing Statement of Affairs.
Under this method two statements are prepared:
STATEMENT OF AFFAIRS
A Statement of affairs is a statement showing the balances of assets (including cash and bank balance) on the right hand side and the balance of liabilities on the left hand side, on a particulars date. The difference in the total of two sides is known as capital.
Capital = Total Assets - Total liabilities
A statement of affairs is very similar to Balances Sheet as prepared for the business entities maintaining accounts under double entry system, through it should not be described as a Balance Sheet
A Statement of Affairs is prepared as follows :
Step 1: Calculate the amount of 'Opening capital' (If not given in the Question) by preparing Statement of Affairs at the beginning of the accounting period.
Step2: Calculate the amount of 'Closing Capital' by preparing 'Statement of Affair' at the end of the accounting period.
Step 3: Calculation of Profit or Loss by preparing Statement of profit or Loss in the following manner Statement of Profit or Loss forthe year ended.
Capital on 1 st April 2015 20,000
Capital on 31st march 2015 25,000
Drawings made during the year 4,800
He sold his investment of 1500 at 3% premium and brought that money into the business. You are required to prepare a statement of profit or loss.
Statement of Profit for two year ended 2015-16
2 Mr. Hemant started his business on 1 st April 2015 with a capital of 1,00,000. He follow a single entry system. At the end of the year i.e. on 31 st March, 2016 the position of Assets & Liabilities was:
Cash in hand 20,000
Statement of affairs
(as at 31st March, 2016)
Statement of Profit and Loss
(for the year ended 31st March 2016)
Aarushi started a business with a capital of 5,00,000, At the end of the year her position was.
Sundry creditors on this date totalled 80,000. During the year she introduced a further capital m 1,50,000 and withdrew for household expenses 90,000. A certain her profit and prepare statement of affairs at the end of year.
Statement of Profit or Loss
Miss Pooja runs a business. She was not maintaining her accounts on the double entry system. On April, 2015 She started the business with a capital of 80,000. One March 31,2016 her incomplete records could provide the following data.
Calculate the profit / loss of her business during the year using statement of affairs method.
STATEMENTS OF AFFAIRS as at 31st March 2016
Illustration 5: Mr. Shiva keeps his book by single entry. His position on 1st April, 2015 was as follows: cash in hand 1250; Cash at bank 1,000 Debtors 2,000; Stock2,500. Furniture 750; Creditors 1,500; Plant and Machinery 3,000 His Position on 31 st March, 2016 was follows:
Cash 300, Debtors 3,000, Stock 3,500, Furniture 1,000, Plant and Machines, 4,500 Creditors2,000 Bank Overdraft500 During the year he with drew 450 for his domestic expenses and introduced 750 as fresh Capital.
STATEMENT OF AFFAIRS As on 1st April, 2015
He immediately bought furniture and fixtures for 20,000. On 30th June, he borrowed ?50,000 from his wife @ 9% p.a. (interest not yet paid) and introduced a further capital of his own amounting to 11,500. He drew at the rate of 3,000 per month at the end of each month for his household expenses. On 31 st December, 2015 his position was as follows:
Furniture and Fixtures to be depreciated by 10% Ascertain the profit or loss made by Naman Jain during 2015
Books of Naman Jain
STATEMENT OF AFFAIRS as on Dec, 31 ,2015
STATEMENT OF PROFIT OR LOSS during 2015
Illustration 7 : Mr. A a trader does not keep proper books of accounts. However, A provides the following particular.
Cash in Hand 300 4,000
Cash in Bank 4500 3,000
Stock 40,000 45,000
Debators 12,200 20,000
Equipment 5,000 5,000
Creditor 30,000 20,000
Furniture 4000 4,000
During the year 2009-10, Mr A introduced 6,000 as additional capital and withdraw 4,000 as drawings. He writes off 10% on furniture and 5% on equipment as depreciation. Prepare a statement showing the profit or loss made by him for the year ended 31 st March 2016.
STATEMENT OF AFFAIRS
as on 31,03,2016
1) Himanshu Gupta who keeps his books on single entry, tells you that his capital on 31-03-2016 was Rs. 28,700 and his capital on 1 - 4-2015 was Rs. 19,200. He further informs you that during the year he withdraw for his household purposes Rs. 8,420. He sold his investments of Rs. 10,000 at 2% premium and brought that money into the business. You are required to calculate profit or loss for the year 2016.
2. Mr. Anand started a business with a capital of Rs 4,50,000. At the end of the year his position was:
Cash in Hand 15.000
Cash in Bank 75.000
Sundry Debtors 1.10.000
Sundry creditors at this date totalled Rs 80,000 During the year he introduced a fresh Capital of Rs. 1,80,000 and withdraw for household expenses Rs. 90,000 You are required to calculate profit or loss during the year.
Ans. (Capital 580,000, Profit during the year40,000)
3. Ravi started business on Jan 01,2015 with a capital of Rs. 4,50,000 On Dec, 31,2015 his position was as under:
Bills Receivable 75,000
Land and Building 1,80,000
He owned Rs. 45,000 to her friend Parul on that date. He withdrew Rs. 8,000 per month for household purposes. Ascertain his Profit or loss for the year ended Dec, 31,2005.
Ans. (Closing capital 4,07,000 Profit 54000)
5) Mr. Mehta keeps incomplete records his Assets and liabilities were as under.
During 20-15-16 he introduced 10,000 as new capital. He withdraw 3,000 every month for his household expenses. Ascertain his Profit for the year ended 31 st March 2016
Ans. Opening Capital 1,20,000 Closing Capital 1,38,000 Profit ^44000
6) Mrs. Pooja started with a capital of 40,000 on 1st july, 2015. She borrowed from her friend a sum of 100,000 @ 10% per annum (Interest paid) for business and brought further amount for capital 17500. On December 31,2015 her position was:
She withdraw 1800 per month for the year calculate profit or loss for the year.
Ans. (Closing Capital 45,000, Profit 2300)
7) Problems based on missing information Fill in the missing figures in the following:
STATEMENT OF AFFAIRS as on 31st December, 2015
STATEMENT OF PROFIT for the year ending 31st December 2015
Ans. (Profile during the year 34,000)