Examiners like questions on incomplete records because they provide the opportunity to test a variety of bookkeeping and accounting techniques.
The two main instances in which incomplete records can be found are where:
- there are no records at all
- some records exist and information is available to calculate missing figures.
No records at all
It is still possible to calculate a profit or loss figure by using the fact that the profit of a business must be represented by more assets. We list and value the opening and closing net assets, then calculate the profit as the difference between the two:
Profit = Closing net assets – Opening net assets
Allowance must be made for proprietor’s drawings and extra capital introduced, so the formula becomes:
Profit = Closing net assets – Opening net assets + Drawings – Capital introduced
This a more common scenario, both in exam questions and in practice. There are standard techniques for calculating missing figures:
- Opening capital
- Missing figures for sales and purchases
- Missing figures for cash.
We need to have the opening capital of the business at the beginning of a period to provide a starting point – the capital in the balance sheet account. Questions will usually give us a list of opening assets and liabilities, and we use this to arrive at the opening capital.
Missing figures for sales and purchases
If we know the opening and closing receivables/debtors of a business, and the cash received from customers, we can calculate sales. All we need to do is set up a sales ledger total account (see Figure 1).
Figure 1: Sales ledger total account (figures invented)
|Opening receivables/debtors||38,600||Cash received||218,650|
|Sales (balancing figures)||221,250||Closing receivables/debtors||41,200|
If any three of these figures is known, the fourth can be calculated.
All we are doing here is using the sales ledger control account format, but instead of proving the accuracy of the sales ledger, we are calculating what the sales must have been in order for the other figures to be what they are. The same technique may be used to calculate credit purchases. If the sales figure is given we can calculate the cash received.
There is another way to calculate sales, purchases or stock figures, and that is to use the trading account format. We normally set up the trading account as (figures invented):
|Less:||cost of sales||10,000|
|less: closing inventory/stock||13,000||75,000|
Suppose the closing inventory/stock has been destroyed by fire, along with all the inventory/stock records. Then we wouldn’t have the closing inventory/stock total to include in our trading account. However, we can calculate it if we know the gross profit percentage on sales – or, of course, the mark-up on cost of sales.
In the example above, gross profit is 25% of sales. If we are told this, we can insert the gross profit of $25,000 and so calculate the missing inventory/stock figure as a balancing item. We can also find a missing purchases figure, or even a missing sales figure.
Suppose we are given:
|Cost of sales|
|less: closing inventory/stock||13,000||75,000|
We are also told that gross profit percentage on sales is 25%. If gross profit is 25% on sales, cost of sales must be 75%. The sales total is therefore:
$75,000 x 100/75 = $100,000.
Whenever the gross profit percentage is given in an incomplete records question, you know that this technique is needed.
Missing figures for cash
We may be given details of cash receipts and payments plus details of opening and closing balances, but with one figure missing, often the proprietor’s drawings. We can calculate the missing figure by setting up a cash account to find the balancing item required.
Here are the incomplete records techniques:
|1 Opening assets and liabilities||Opening balance|
|2 Sales or purchases ledger total amounts||Any missing figure|
|3 Trading profit (gross profit percentage must be given)||Any missing figure|
|4 Cash account||Any missing figure|
There is only one way to develop fluency in incomplete records questions, and that is to practise as many questions as you can. Here are three short exercises:
The net assets of Altese, a trader, at 1 January 2003 amounted to $128,000. During the year to 31 December 2003, Altese introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 2003, Altese’s net assets totalled $184,000. Using this information compute Altese’s total profit for the year ended 31 December 2003.
Senji does not keep proper accounting records, and it is necessary to calculate her total purchases for the year ended 31 January 2004 from the following information:
|31 January 2003 130,400||130,400|
|31 January 2004 171,250||171,250|
|Payments to suppliers||888,400|
|Cost of goods taken by Senji for her personal use||1,000|
|Refund received from suppliers||2,400|
Compute the figure for purchases for inclusion in Senji’s financial statements.
Aluki fixes prices to make a standard gross profit percentage on sales of 331/3%. The following information is available for the year ended 31 January 2004 to compute her sales total for the year:
|1 February 2003||243,000|
|31 January 2004||261,700|
Calculate the sales figure for the year ended 31 January 2004.
|Profit is therefore||54,000|
|2: Purchases total account|
|Payments||888,400||Balance brought forward||130,400|
|Discounts received||11,200||Goods taken by Senji||1,000|
|Balance carried forward||171,250||Refunds from suppliers||2,400|
|Purchases (balancing figure)||937,050|
|Cost of sales||$||$|
|less: closing inventory/stock||261,700|
|Sales figure is therefore:|
|$535,500 x 3/2||803,250|
These three examples are quite elementary, but they illustrate techniques that you will find in nearly all incomplete records questions.