Accounts from Incomplete Records

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Meaning of Accounts from Incomplete Records

Accounting records, which aren’t strictly kept consistent with the double-entry bookkeeping system are referred to as Accounts from incomplete records. Many authors describe it as a single entry system.

However, a single-entry bookkeeping system may be a misnomer because there’s no such system for maintaining accounting records. It is also not a ‘shortcut’ method as an alternate to the double-entry bookkeeping system. It is rather a mechanism of maintaining records whereby some transactions are recorded with proper debits and credits while just in the case of others, either one-sided or no entry is formed.

Normally, under this technique records of money and private accounts of debtors and creditors are properly maintained, while the knowledge concerning assets, liabilities, expenses and revenues is partially recorded. Hence, these are usually referred to as accounts from  incomplete records.

Features of Incomplete Records

Incomplete records could also be thanks to the partial recording of transactions as is that the case with small shopkeepers like grocers and vendors. In the case of huge sized organisations, the accounting records could also be rendered to the state of incompleteness due to natural calamity, theft or fire. The features of incomplete records are as follow :
(a) it’s an unsystematic method of recording transactions.
(b) Generally, records for cash transactions and private accounts are properly maintained and there’s no information regarding revenue and/ or gains, expenses and/or losses, assets and liabilities.
(c) Personal transactions of householders can also be recorded within the cash book.
(d) Different organisations maintain records consistent with their convenience and wishes, and their accounts aren’t comparable thanks to lack of uniformity.
(e) to determine profit or loss or for obtaining the other information, necessary figures are often collected only from the first vouchers like sales invoice or purchase invoice, etc. Thus, dependence on original vouchers is inevitable.
(f) The profit or loss for the year can’t be ascertained under this technique with a high degree of accuracy as only an estimate of the profit earned or loss incurred can be made. The record also might not reflect the entire and true position of assets and liabilities.

Reasons of Incompleteness and Its Limitations

It is observed, that a lot of businessmen keep accounts from incomplete records due to the subsequent reasons :

(a) this technique is often adopted by people that don’t have the right knowledge of accounting principles;
(b) it’s a cheap mode of maintaining records. The cost involved is low as specialised accountants aren’t appointed by the organisations;
(c) Time consumed in maintaining records is a smaller amount as only a couple of books is maintained; and
(d) it’s a convenient mode of maintaining records because the owner may record only important transactions consistent with the necessity of the business.

However, the mechanism of incomplete records suffers from a variety of limitations. This is due to the basic nature of this mechanism. Broadly speaking, unless a scientific approach to the maintenance of records is followed, reliable financial statements can’t be prepared.

The limitations of accounts from incomplete records are as under :

(a) As a double-entry bookkeeping system isn’t followed, an attempt balance can’t be prepared and accuracy of accounts can’t be ensured.
(b) Correct ascertainment and evaluation of monetary results of business operations can’t be made.
(c) Analysis of profitability, liquidity and solvency of the business can’t be done. This may cause drag in raising funds from outsiders and planning future business activities.
(d) The owners face great difficulty in filing a claim with an insurance firm just in case of loss of inventory by fire or theft.
(e) It becomes difficult to convince the tax authorities about the reliability of the computed income.

Ascertainment of Profit or Loss

Every firm wishes to determine the results of its operations to assess its efficiency and success and failures.

This gives rise to the necessity for preparing the financial statements to disclose:
(a) the profit made or loss constant by the firm during a given period, and
(b) the number of assets and liabilities as of the deadline of the accounting period.

Therefore, the matter faced during this situation is the way to use the available information within the incomplete records to determine the profit or loss for the actual accounting year and to determine the financial position of an entity at the top of the year.

This can be done in two ways :
1. Preparing the Statement of Affairs as at the start and as at the top of the accounting period, called statement of affairs or net worth method.
2. Preparing Trading and Profit and Loss Account and therefore the record by putting the accounting records in proper order, called conversion method.

Preparing Statement of Affairs

Under this method, a statement of asset and liabilities at the start and the top of the relevant accounting period is prepared to determine the quantity of change in the capital during the period. Such a press release is understood as a statement of affairs, shows assets on one side and therefore the liabilities on the opposite even as just in case of a record.

The difference between the totals of the 2 sides (balancing figure) is that the capital. Though a statement of affairs resembles a record, it’s not called a record because the info isn’t wholly supported by ledger balances. The number of things like fixed assets, outstanding expenses, bank balances, etc. is confirmed from the relevant documents and physical count.

Once the quantity of capital, both at the start and at the top is computed with the assistance of a statement of affairs, a press release of profit and loss is ready to ascertain the precise amount of profit or loss made during the year. The difference between the opening and shutting 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 to reach the quantity of profit or loss made during the amount.

If the internet results of the above computation may be a positive amount, it represents the profit earned during the year. In case the internet result’s a negative amount, it might represent the loss sustained during the year. The same computation is often wiped out the shape of an equation as follows :

Profit or Loss = Capital at the end – Capital at beginning + Drawings all the same time as the year – Capital introduced during the year

Difference between Statement of Affairs and Balance Sheet

Both statements of affairs and record show the assets and liabilities of a business entity on a specific date. However, there are some principal differences between the two.

A statement of affairs is prepared from incomplete records where most of the assets are recorded on the idea of estimates compared to a record which is ready from records maintained on the idea of double-entry book-keeping and every asset and liabilities are often verified from the ledger accounts.

Hence, a record is more reliable than a press release of affairs. The objective of preparing a press release of affairs is to determine the quantity of capital account as thereon date whereas a record is ready to know the financial position of the business at a definite date. In a statement of affairs, an item of assets or liabilities may get omitted and this omission may remain unknown because the effect of this omission gets adjusted within the capital account balance and therefore the total of each side of the statement match.

However, just in the case of a record, the likelihood of omission of any item is remote because, in case of an omission, the record won’t agree. The accountant will indicate the missing item from accounting records. These differences are shown during a tabular form as under :

Basis of difference Statement of affairs Balance sheet
Reliability It is less reliable as it is prepared

from incomplete records.

It is more reliable as it is prepared

from double-entry records.

Objective The objective of preparing the statement of affairs is to estimate the balance in the capital account on a particular date. The objective of preparing a balance sheet is to show the true financial position of an entity on a particular date.
Omission Omission of assets or liabilities

cannot be discovered easily.

Omissions of assets or liabilities can be discovered easily and can be traced from accounting records.


Preparing Trading and Profit and Loss Account and the Balance Sheet

To prepare proper trading and profit and loss account and thus the record one needs complete information regarding expenses, incomes, assets and liabilities. just in case of incomplete records, details of some items like creditors, cash purchases, debtors, cash sales, other cash payments and such receipts are easily available, but there are a variety of things the tiny print of which may get to be ascertained indirectly by using the logic of double-entry.

The foremost common items that are missing and wish to be found out intrinsically are :
• Opening capital
• Credit purchases
• Credit sales
• Bills payable accepted
• Bills receivable received
• Payments to creditors
• Payments to debtors
• the other cash/bank related items.

You know that opening capital is often found by preparing the statement of the affairs at the beginning of the year. For other items, we’ve explained how available information is often used to ascertain their missing figures with the help of total debtors and total creditors, total bills receivable and total bills payable accounts and analysis of cash.

1. Ascertaining Credit Purchases

The credit purchases figure isn’t usually available from the unfinished records. It is quite possible that other information associated with creditors can also be missing.

2. Ascertainment of Credit Sales

The figure of credit sales is additionally not usually available from incomplete records. Some other information associated with debtors can also be missing.

3. Ascertainment of Bills Receivable and Bills payable

Quite often, while all details concerning bills receivable and bills payable are available but the figures of the bills received and bills accepted during the year aren’t given. In such a situation, total bills receivable account and total bills payable account are often prepared and therefore the missing figures ascertained because of the balancing figures.

4. Ascertainment of Missing Information through Summary of Cash

Sometimes, the quantity paid to creditors or the quantity received from debtors or the opening or closing cash or bank balance could also be missing. To determine any missing item of receipt of payment, we may prepare a cash book summary showing all receipts and payments during the year and therefore the balancing figure is taken because of the amount of missing item.

If however, both amount paid to creditors which received from debtors are missing, then anybody of those could also be obtained first through the entire creditors or total debtors account, as the case could also be, and therefore the other missing information ascertained from the cash book summary within the same way as stated earlier.


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