Full Text Transcript
10
ACCOUNTS FROM INCOMPLETE
RECORDS
Learning Objectives
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.
♦ Learn how to adjust fresh capital investment and withdrawals by the proprietors/
partners.
♦ Learn how to apply standard gross profit ratio to find out cost of sales and purchases.
♦ Learn how to find out sales using gross profit ratio given purchases and stock.
♦ Learn how to find out sales, applying gross profit ratio and adjusting for trend.
1. Introduction
Very often the small sole proprietorship and partnership businesses do not maintain double
entry book keeping system. Sometimes they keep record only of the cash transactions and
credit transactions. Sometimes they maintain no record of many transactions. But at the end of
the accounting period they want to know the performance and financial position of their
businesses. This creates some special problems to the accountants. This study discusses how
to complete the accounts from available incomplete records.
The term “Single Entry System” is popularly used to describe the problems of accounts from
incomplete records. In fact there is no such system as single entry system. In practice the
quack accountants follow some hybrid methods. For some transactions they complete double
entries. For some others they just maintain one entry. Still for some others, they even do not
pass any entry. This is no system of accounting. Briefly, this may be stated as incomplete
records. The task of the accountant is to establish linkage among the available information
and to finalise the accounts.
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
1.1 Features
• It is an inaccurate, unscientific and unsystematic method of recording business
transactions.
• There is generally no record of real and personal 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 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 and no other account is 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.
Closing Capital - Opening Capital = Profit
If detailed information regarding revenue and expenses is not known, it becomes difficult to
prepare profit and loss account. Instead by collecting information about assets and liabilities, it
is easier to prepare balance sheet at two different points of time. So, while preparing accounts
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© The Institute of Chartered Accountants of India
Accounting
from incomplete records, if sufficient information is not available, it is better to follow the
method of capital comparison to arrive at the profit figure.
3.1 Methods of Capital Comparison
Capital is increased if there is profit, while capital is reduced if there is loss. However, if the
proprietor/partners made fresh investments in the business, capital is increased; if they make
withdrawal capital is reduced. So while determining the profit by capital comparison, the
following rules should be followed.
Capital at the end `
Add: Drawings ....
Less: Fresh capital introduced .....
Capital in the beginning .....
Profit .....
It is clear from the above discussion that to follow the capital comparison method one should know
the opening capital and closing capital. This should be determined by preparing statement of affairs
at the two respective points of time. Capital always equals assets minus liabilities.
Thus preparation of statement of affairs will require listing up of assets and liabilities and their
amount. The accountant utilizes the following sources for the purpose of finding out the
assets and liabilities of a business enterprise:
(i) Cash book for cash balance
(ii) Bank pass book for bank balance
(iii) Personal ledger for debtors and creditors
(iv) Stock by actual counting and valuation.
(v) As regards fixed assets, he prepares a list of them. The proprietor would help him by
disclosing the original cost and date of purchase. After deducting reasonable amount of
depreciation, the written down or depreciated value would be included in the Statement
of Affairs.
After obtaining all necessary information about assets and liabilities, the next task of the
accountants is to prepare statement of affairs at two different points of time.
The design of the statement of affairs is just like balance sheet as given below:
Statement of affairs as on ...........
Liabilities ` Assets `
Capital (Bal. Fig.) Building
Loans, Bank Machinery
overdraft
Sundry creditors Furniture
Bills payable Stock
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Accounts from Incomplete Records
Sundry debtors
Bills receivable
Loans and advances
Cash and bank
Now from the statement of affairs prepared for two different dates, opening and closing capital
balances can be obtained.
3.2 Difference between Statement of Affairs and Balance Sheet
Basis Statement of affairs Balance sheet
Reliability It is prepared on the basis of It is based on transactions
transactions partly recorded on the recorded strictly on the basis of
basis of double entry book keeping double entry book keeping; each
and partly on the basis of single item in the balance sheet can be
basis. Most of the assets are verified from the relevant
recorded on the basis of estimates, subsidiary books and ledger.
assumptions, information gathered Hence the balance sheet is not
from memory rather than records. only reliable, but also dependable.
Capital In this statement, capital is merely a Capital is derived from the
balancing figure being excess of capital account in the ledger and
assets over capital. Hence assets therefore the total of assets side
need not be equal to liabilities. will always be equal to the total
of liabilities side.
Omission Since this statement is prepared on There is no possibility of
the basis of incomplete records, it is omission of any item of asset
very difficult, to locate the assets and liability since all items are
and liabilities, if they are omitted properly recorded. Moreover, it
from the books. is easy to locate the missing
items since the balance sheet
will not agree.
Basis of Valuation The valuation of assets is generally The valuation of assets is done on
done in an arbitrary manner; scientific basis, that is original cost
therefore no method of valuation is in the case of new assets and
disclosed. depreciated amount on the basis
of cost minus depreciation to date
for used assets. Any change in the
method of valuation is properly
disclosed.
Objects The object of preparing this The object of preparing the
statement in the calculation of balance sheet is to ascertain the
capital figures in the beginning and financial position on a particular
at the end of the accounting period date.
respectively.
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Accounting
3.3 Preparation of Statement of Affairs and Determination of Profit
It has been discussed in Para 3.1 that figures of assets and liabilities should be collected for
preparation of statement of affairs. Given below an example:
Illustration 1
Assets and Liabilities of Mr. X as on 31-12-2009 and 31-12-2010 are as follows:
31-12-2009 31-12-2010
` `
Assets
Building 1,00,000
Furniture 50,000
Stock 1,20,000 2,70,000
Sundry Debtors 40,000 90,000
Cash at Bank 70,000 85,000
Cash in Hand 1,200 3,200
Liabilities
Loans 1,00,000 80,000
Sundry Creditors 40,000 70,000
Decided to depreciate building by 2.5% and furniture by 10%. One Life Insurance Policy of the
Proprietor was matured during the period and the amount ` 40,000 is retained in the
business. Proprietor took @ ` 2,000 p.m. for meeting family expenses.
Prepare Statement of Affairs.
Solution
Statement of Affairs
as on 31-12-2009 & 31-12-2010
Liabilities 31-12-2009 31-12-2010 Assets 31-12-2009 31-12-2010
` ` ` `
Capital 2,41,200 4,40,700 Building 1,00,000 97,500
(Balancing Figures) Furniture 50,000 45,000
Loans 1,00,000 80,000 Stock 1,20,000 2,70,000
Sundry Creditors 40,000 70,000 Sundry Debtors 40,000 90,000
Cash at Bank 70,000 85,000
Cash in Hand 1,200 3,200
3,81,200 5,90,700 3,81,200 5,90,700
Illustration 2
Take figures given in Illustration 1. Find out profit of Mr. X.
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Accounts from Incomplete Records
Solution
Determination of Profit by applying the method of the capital comparison.
`
Capital Balance as on 31-12-2010 4,40,700
Less : Fresh capital introduced 40,000
4,00,700
Add : Drawings (` 2000 × 12) 24,000
4,24,700
Less : Capital Balance as on 31-12-2009 2,41,200
Profit 1,83,500
Note :
• Closing capital is increased due to fresh capital introduction, so it is deducted.
• Closing capital was reduced due to withdrawal by proprietor; so it is added back.
Illustration 3
A and B are in Partnership having Profit sharing ratio 2:1 The following information is available
about their assets and liabilities :
31-3-2010 31-3-2011
` `
Furniture 1,20,000
Advances 70,000 50,000
Creditors 32,000 30,000
Debtors 40,000 45,000
Stock 60,000 74,750
Loan 80,000 —
Cash at Bank 50,000 1,40,000
The partners are entitled to salary @ ` 2,000 p.m. They contributed proportionate capital.
Interest is paid @ 6% on capital and charged @ 10% on drawings.
Drawings of A and B
A B
` `
April 30 2,000 —
May 31 — 2000
June 30 4,000 —
Sept. 30 — 6,000
Dec. 31 2,000 —
Feb. 28 — 8,000
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Accounting
On 30th June, they took C as 1/3rd partner who contributed ` 75,000. C is entitled to share of 9
months’ profit. The new profit ratio becomes 1:1:1. A withdrew his proportionate share. Depreciate
furniture @ 10% p.a., new purchases ` 10,000 may be depreciated for 1/4th of a year.
Current account as on 31-3-2010: A ` 5,000 (Cr.), B ` 2,000 (Dr.)
Prepare Statement of Profit, Current Accounts of partners and Statement of Affairs as on 31-3-2011.
Solution
Statement of Affairs
As on 31-3-2010 and 31-3-2011
Liabilities 31-3-2010 31-3-2011 Assets 31-3-2010 31-3-2011
` ` ` `
Capital A/cs
A 1,50,000 75,000 Furniture 1,20,000 1,17,750
B 75,000 75,000 Advances 70,000 50,000
C — 75,000 Stock 60,000 74,750
Loan 80,000 — Debtors 40,000 45,000
Cash at Bank 50,000 1,40,000
Creditors 32,000 30,000 Current A/c
B 2,000 —
Current A/cs
A 5,000 74,036*
B — 48,322*
C — 50,142*
3,42,000 4,27,500 3,42,000 4,27,500
*See current A/cs.
Notes:
(i) Depreciation on Furniture
10% on ` 1,20,000 ` 12,000
10% on ` 10,000 for 1/4 year ` 250
` 12,250
(ii) Furniture as on 31-3-2011
Balance as on 31-3-2010 ` 1,20,000
Add: new purchase ` 10,000
` 1,30,000
Less: Depreciation ` 12,250
` 1,17,750
(iii) Total of Current Accounts as on 31-3-2011
Total of Assets ` 4,27,500
Less : Fixed Capital + Liabilities ` 2,55,000
` 1,72,500
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Accounts from Incomplete Records
This is after adding salary, interest on capital and deducting drawings and interest on
drawings.
(iv) Interest on Capital :
A : on ` 1,50,000 @ 6% for 3 months ` 2,250
on ` 75,000 @ 6% for 9 months ` 3,375
` 5,625
B : on ` 75,000 @ 6% for 1 year ` 4,500
C : on ` 75,000 @ 6% for 9 months ` 3,375
` 7,875
(v) Interest on Drawings :
A : on ` 2,000 @ 10% for 11 months ` 183
: on ` 4,000 @ 10% for 9 months ` 300
: on ` 2,000 @ 10% for 3 months ` 50
533
B : on ` 2,000 @ 10% for 10 months 167
: on ` 6,000 @ 10% for 6 months 300
: on ` 8,000 @ 10% for 1 month 67
534
Allocation of Profit ` 1,15,067
3 months Profit ` 28,767
9 months Profit ` 86,300
A : 2/3 × ` 28,767 + 1/3 × ` 86,300 = ` 47,944
B : 1/3 × ` 1,15,067 = ` 38,356
C: 1/3 × ` 86,300 = ` 28,767
` 1,15,067
Current Accounts
A B C A B C
To Balance b/d — 2,000 — By Balance b/d 5,000 — —
” Drawings 8,000 16,000 — ” Salary 24,000 24,000 18,000
” Interest on drawings 533 534 — ” Interest 5,625 4,500 3,375
on capital
” Balance c/d 74,036 48,322 50,142 ” Share of Profit 47,944 38,356 28,767
82,569 66,856 50,142 82,569 66,856 50,142
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© The Institute of Chartered Accountants of India
Accounting
Statement of Profit
`
Current Account Balances as on 31-3-2011 1,72,500
Less: Salary A ` 2,000 × 12 = ` 24,000
B ` 2,000 × 12 = ` 24,000
C ` 2,000 × 9 = ` 18,000 (66,000)
Less: Interest on Capital A ` 5,625
B ` 4,500
C ` 3,375 (13,500)
Add: Drawings A ` 8,000
B ` 16,000 24,000
” Interest on Drawings A 533
B 534 1,067
1,18,067
Less: Current A/c Balances as on 31-3-2010 ` 5,000 – ` 2,000 3,000
1,15,067
Illustration 4
The Income Tax Officer, assuming the income of Shri Moti for the financial years 2009-2010
and 2010-2011 feels that Shri Moti has not disclosed the full income. He gives you the
following particulars of assets and liabilities of Shri Moti on 1st April 2009 and 1st April, 2011.
`
1-4-2009 Assets : Cash in hand 25,500
Stock 56,000
Sundry Debtors 41,500
Land and Building 1,98,000
Wife’s Jewellery 75,000
Liabilities : Owing to Moti’s Brother 40,000
Sundry Creditors 35,000
1-4-2011 Assets : Cash in hand 16,000
Stock 91,500
Sundry Debtors 52,500
Land and Building 1,90,000
Motor Car 1,25,000
Wife’s Jewellery 1,25,000
Loan to Moti’s Brother 20,000
Liabilities : Sundry Creditors 55,000
During the two years the domestic expenditure was ` 4,000 p.m. The declared income of the
financial years were ` 1,05,000 for 2009-2010 and ` 1,23,000 for 2010-2011 respectively.
State whether the Income-tax Officer’s contention is correct. Explain by giving your workings.
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© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Solution
Capital A/c of Shri Moti
1-4-2009 1-4-2011
Assets ` ` ` `
Cash in hand 25,500 16,000
Stock 56,000 91,500
Sundry Debtors 41,500 52,500
Land & Building 1,90,000 1,90,000
Wife’s Jewellery 75,000 1,25,000
Motor Car — 1,25,000
Loan to Moti’s Brother — 20,000
3,88,000 6,20,000
Liabilities:
Owing to Moti’s Brother 40,000 —
Sundry Creditors 35,000 75,000 55,000 55,000
Capital 3,13,000 5,65,000
Income during the two years:
Capital as on 1-4-2011 5,65,000
Add: Drawings – Domestic Expenses for the two years (` 4,000 × 24) 96,000
6,61,000
Less: Capital as on 1-4-2009 3,13,000
Income earned in 2009-2010 & 2010-2011 3,48,000
Income declared (` 1,05,000 + ` 1,23,000) 2,28,000
Suppressed Income 1,20,000
The Income-tax officer’s contention that Shri Moti has not declared his true income is correct.
Shri Moti’s true income is in excess of the disclosed income by ` 1,20,000.
Illustration 5
Suresh does not maintain his books of accounts under the double entry system but keeps
slips of papers from which he makes up his annual accounts. He has borrowed moneys from a
bank to whom he has to render figures of profits every year. He has given the bank the
following profit figures:
Year ending 31st December Profits `
2006 20,000
2007 32,000
2008 35,000
2009 48,000
2010 55,000
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Accounting
The bank appoints you to audit the statements and verify whether the figures of profits report
is corrected or not; for this purpose, the following figures are made available to you:
(a) Position as on 31st December, 2005: Sundry debtors ` 20,000; Stock in trade (at 95%
of the cost) ` 47,500; Cash in hand and at bank ` 12,600; Trade creditors ` 6,000;
Expenses due ` 1,600.
(b) He had borrowed ` 5,000 from his wife on 30th September, 2005 on which he had
agreed to pay simple interest at 12% p.a. The loan was repaid alongwith interest on
31st December, 2007.
(c) In December, 2006, he had advanced ` 8,000 to A for purchase of a vacant land. The
property was registered in March, 2008 after payment of balance consideration of `
32,000. Costs of registration incurred for this were ` 7,500.
(d) Suresh purchased jewellery for ` 15,000 for his daughter in October, 2008. Marriage
expenses incurred in January were ` 24,000.
(e) A new VCR was purchased by him in March 2010 for ` 18,000 and presented by him to
his friend in November, 2010.
(f) His annual household expenses amounted to a minimum of ` 24,000.
(g) The position of assets and liabilities as on 31st December 2010 was found to be
Overdraft with bank (secured against property) ` 12,000; Trade creditors ` 10,000.
Expenses payable ` 600; Sundry debtors (including ` 600 due from a peon declared
insolvent by Court) ` 28,800; Stock in trade (at 125% of cost to reflect market value) `
60,000 and Cash in hand ` 250.
It is found that the rate of profit has been uniform throughout the period and the proportion of
sales during the years to total sales for the period was in the ratio of 3:4:4:6:8.
Ascertain the annual profits and indicate differences, if any, with those reported by Suresh to
the bank earlier.
All workings are to form part of your answer.
Solution
Statement of Affairs as on 31-12-2005
Liabilities ` Assets `
Loan from ` Sundry Debtors 20,000
Mrs. Suresh 5,000 Stock on trade-at cost
⎛ 100⎞
Add: Interest Outstanding 150 5,150 ⎜47,500× ⎟ 50,000
⎝ 95 ⎠
Trade Creditors 6,000 Cash in hand & at bank 12,600
Outstanding expenses 1,600
Capital (Bal. fig.) 69,850
82,600 82,600
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Accounts from Incomplete Records
Statement of Affairs as on 31-12-2010
Liabilities ` Assets `
Bank overdraft-secured Sundry Debtors 28,800
against property 12,000 Stock in trade
Trade Creditors 10,000 at cost (` 60,000 × 100/125) 48,000
Outstanding expenses 600 Cash in hand 250
Capital Balancing figure 54,450
77,050 77,050
Statement of Profit for the period 1-1-2006 to 31-12-2010
`
Capital as on 31-12-2010 as per statement 54,450
Add: Drawings during the period (` 24,000 × 5) 1,20,000
Purchase of property 47,500
Purchase of jewellery & marriage expenses of Mr. Suresh’s daughter 39,000
Purchase of new VCR for presentation to the proprietor’s friend 18,000
278,950
Less: Capital as on 31-12-2005 as per statement 69,850
Profit for the five-year period 2,09,100
Less: Bad debts not accounted for in the Statement of Affairs as on 31-12-2010 600
Net profit over the five-year period 2,08,500
Statement showing annual profits and their differences with
reported profits: 2006–2010
Year Apportionment Annual Profit Difference
ended Ratio profit reported to bank
` ` `
31-12-2006 3 25,020 20,000 (+) 5020
31-12-2007 4 33,360 32,000 (+) 1360
31-12-2008 4 33,360 35,000 (–) 1640
31-12-2009 6 50,040 48,000 (+) 2040
31-12-2010 8 66,720 55,000 (+) 11,720
2,08,500 1,90,000 (+) 18500
4. Techniques of Obtaining Complete Accounting Information
When books of accounts are incomplete, it is essential in the first instance to complete double
entry in respect of all transactions. The whole accounting process should be carefully followed
and Trial Balance should be drawn up.
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Accounting
4.1 General Techniques
Where the accounts of a business are incomplete, it is advisable to convert them first to the
double entry system and then to draw up the Profit and Loss Account and the Balance Sheet,
instead of determining the amount of profit/loss by preparing the statement of affairs. As books
of accounts of different firms being incomplete in varying degrees, it is not possible to suggest
a formula which could uniformly be applied for preparing final accounts therefrom. As a
general rule, it is essential first to start the ledger accounts with the opening balances of
assets, liabilities and the capital. Afterwards, each book of original entry should be separately
dealt with, so as to complete the double entry by posting into the ledger such entries as have
not been posted. For example, If only personal accounts have been posted from the Cash
Book, debits and credits pertaining to nominal accounts and real accounts that are not posted,
should be posted into the ledger. If there are Discount Columns in the Cash Book, the totals of
discounts paid and received should be posted to Discounts Allowed and Discounts Received
Accounts respectively, for completing the double entry.
Afterwards, the other subsidiary books, i.e., Purchases Day Book, Sales Day Book, Return
Book and Bills Receivable and Payable, etc. should be totalled up and their totals posted into
the ledger to the debit or credit of the appropriate nominal or real accounts, the personal
aspect of the transactions having been posted already.
When an Accountant is engaged in posting the unposted items from the Cash Book and other
subsidiary books, he may be confronted with a number of problems. The manner in which
some of them may be dealt with is described below:
(1) In the Cash Book, there might be entered several receipts which have no connection with
the business but which belong to the proprietor, e.g., interest collected on his private
investment, legacies received by him, amount contributed by the proprietor from his private
resources, etc. All those amounts should be credited to his capital account. Also the Cash
Book may contain entries in respect of payments for proprietor’s purchases made by the
business. All such items should be debited to his capital account.
(2) Amounts belonging to the business after collection may have been directly utilised for
acquiring business assets or for meeting certain expenses instead of being deposited into the
Cash Book. On the other hand, the proprietor may have met some of the business expenses
from his private resources. In that case, the appropriate asset or expense account should be
debited and the source which had provided funds credited.
(3) If cash is short, because the proprietor had withdrawn amount without any entry having
been made in the cash book the proprietor’s capital account should be debited. In fact, it will
be necessary to debit or credit the proprietor’s capital account in respect of all unidentified
amounts which cannot be adjusted otherwise.
(4) Where the benefit of an item of an expense is received both by the proprietor and
business, then it should be allocated between them on some equitable basis e.g. rent of
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Accounts from Incomplete Records
premises when the proprietor lives in the same premises, should be allocated on the basis of
the area occupied by him for residence.
(5) The schedules of sundry debtors and creditors, extracted from respective ledgers
maintained for the purpose should be examined to find out if, by mistake, an item of revenue
or expense has found its way therein. Having done so and, if necessary after eliminating such
amounts, the schedules should be totalled and the total debited to Sundry Debtors Account in
the ledger. Similarly, the total of schedules of sundry creditors should be credited to Sundry
Creditors Account. One should note that since Sales Account, Purchase Account and other
nominal accounts having already been written up on the basis of Day Books, it is not
necessary to adjust them further. It is expected that the opening balances in these accounts
would have been adjusted by recovery or payment and the receipt from debtors and the
payment to creditors correctly posted to the accounts instead of having been recorded as
Sales or Purchases. If however, it has been done, these balances would require to be
adjusted by transfer to Sales or Purchases Accounts or to Bad Debts or Discount Account, as
the case may be.
In the end, it will be possible to extract a Trial Balance. Students are advised always to do so
as it will disclose any mistakes committed in making adjustments.
4.2 Derivation of Information from Cash Book
The analysis of cash as well as bank receipts and payments, should be extensive but under
significant heads, so that various items of income and expenditure can be posted therefrom
into the ledger. However before posting the information into the ledger the same should be
collected in the form of an account, the specimen whereof is shown below:
Cash and Bank Summary Account for the year ended
Cash Bank Cash Bank
` ` ` `
To Balance in hand 590 7,400 By Expenses 3,000 -
(opening) (Sundry Payments)
To Sales 6,500 - By Purchases 100 6,000
To Collection from By Sundry Creditors - 5,000
Debtors - 10,000 By Drawings 1,500 -
By Petty Expenses 800 -
By Rent - 1,000
By Electricity and water 350 -
By Repairs 350 -
By Wages - 1,000
By Balance in Hand 990 4,400
7,090 17,400 7,090 17,400
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Accounting
The important point about incomplete records is that much of the information may not be
readily available and that the relevant information has to be ascertained. A good point is to
prepare Cash and Bank Summary (if not available in proper form with both sides tallied). The
cash and bank balance at the end should be reconciled with the cash and bank books. Having
done so, the various items detailed on the Summary Statements, should be posted into the
ledger.
It is quite likely that some of the missing information will then be available. Consider the
following about a firm relating to 2010.
`
Cash Balance on 1st Jan., 2010 250
Bank overdraft on 1st Jan., 2010 5,400
Cash purchases 3,000
Collection from Sundry Debtors 45,600
Sale of old furniture 750
Purchase of Machinery 12,000
Payment of Sundry Creditors 26,370
Expenses 8,450
Fresh Capital brought in 5,000
Drawings 3,230
Cash Balance on 31st Dec., 2010 310
Bank balance on 31st Dec., 2010 1,180
Now prepare the cash and Bank Summary.
Cash and Bank Summary
Dr. Cr.
` `
Cash Balance as on 1-1-2010 250 Bank Overdraft 5,400
Collection from S. Debtors 45,600 Cash Purchases 3,000
Purchase of Machinery 12,000
Sale of old furniture 750 Payment to S. Creditors 26,370
Fresh Capital brought in 5,000 Expenses 8,450
Balancing figure 8,340 Drawings 3,230
Cash balance on 31-12-2010 310
Bank balance on 31-12-2010 1,180
59,940 59,940
See that debit side is short by ` 8,340. What may be the possible source of cash inflow?
May be cash sales.
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Accounts from Incomplete Records
4.3 Analysis of Sales Ledger and Purchase Ledger
Sales Ledger: It would disclose information pertaining to the opening balance of the debtors,
the goods sold to them on credit during the year, bills receivable dishonoured, if any; cash
received from them in the accounting period, discount, rebate or any other concession allowed
to them, receipts of bills receivable, returns inwards, bad debts written off and transfers.
Journal entries must be made by debiting or crediting the impersonal accounts concerned with
contra credit or debit given to total debtors account.
Analysis of Sales Ledger of the year
Opg. Sales Bills Total Cash Dis- Bills Sales Bad Total Balance
Customer Disho- Debits Recd. counts Recd. Returns Debts Credit (clg.)
Balance noured Alld.
From the aforementioned, it will be possible to build up information about sales and other accounts
which can then be posted in totals, if so desired. It would also be possible to prepare Total Debtors
Account in the following form:
Total Debtors Account (assumed figures)
` `
Opening Balance 5,000 Cash/Bank 10,000
Sales 38,000 Discount 500
Bills dishonored 280 Bills Receivable 20,000
Interest 100 Bad Debts 280
Closing Balance 12,600
43,380 43,380
It is evident that any single amount comprised in the total Debtors Account can be ascertained
if the other figures are provided. For instance, if the information about sales is not available it
could be ascertained as a balancing figure, i.e., in the total Debtors Account given above, if all
other figures are given sales would be ` 38,000.
Purchases Ledger: Generally speaking, a Purchases Ledger is not as commonly in existence
as the Debtors Ledger for it is convenient to make entries in respect of outstanding liabilities at
the time they are paid rather than when they are incurred. The information is available in
respect of opening balance of the creditors, goods purchased on credit, bills payable
dishonored; cash paid to the creditors during the year, discount and other concessions
obtained, returns outwards and transfers. Here also, journal entries must be made by debiting
or crediting the respective impersonal accounts. Contra credit or debit being given to total
creditor’s account.
If a proper record of return to creditors, discount allowed by them etc., has not been kept, it
will not be possible to write up the Total Creditors A/c. In such a case, net credit purchase will
be ascertained as follows:
10.16
© The Institute of Chartered Accountants of India
Accounting
Cash paid to Creditors including on account of Bills
Payable during the period ...................
Closing balance of Creditors and Bills Payable ...................
Total ___________
Less: Opening balance of Creditors and Bills Payable ...................
Net credit purchase during the period ...................
Alternatively
Cash paid to creditors during the period ...................
Add: Bills Payable issued to them ...................
Total __________
Closing balance of Creditors
Less: Opening balance of creditors ...................
Credit Purchases during the period ...................
The information may also be put in the form of an account, just like the Total Debtors Account.
Nominal Accounts: It is quite likely that the total expenditure shown by balance of nominal
account may contain items of expenditure which do not relate to the year for which accounts
are being prepared and, also, there may exist certain items of expenditure incurred but not
paid, which have not been included therein. On that account, each and every account should
be adjusted in the manner shown below (figures assumed):
Cash and Amount Paid out of Total Pre Expenses
Particulars Bank Pay- Accrued Private Payment for the
ment Fund period
1 2 3 4 5 6 7
` ` ` ` ` `
Rent & Rates 2,200 300 100 2,600 150 2,450
Salaries 4,500 500 1,000 6,000 250 5,750
Only the amount entered as “expenses for the period” should be posted to the respective
nominal accounts. A similar adjustment of nominal accounts in respect of revenue receipt
should be made.
Let us continue with the example given in para 2.2. Given some other information, how to
compute credit purchase and credit sale is discussed below:
Opening Balance (1-1-2010) `
Stock 20,000
Sundry Creditors 12,300
10.17
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Sundry Debtors 15,000
Closing Balance (31-12-2010)
Stock 15,000
Sundry Creditors 13,800
Sundry Debtors 25,600
Discount received during 2010 1,130
Discount allowed 1,870
What are the purchases for 2010? Let us prepare the Sundry Creditors Account.
Sundry Creditors A/c
` `
To Cash 26,370 By Balance b/d
To Discount 1,130 (opening) 12,300
To Balance c/d (closing) 13,800 By Purchases (balancing figure) 29,000
41,300 41,300
The credit purchases are ` 29,000; cash purchases are ` 3,000: hence total purchases are
` 32,000.
Likewise prepare the Sundry Debtors Account:
Sundry Debtors Account
` `
To Balance b/d (balancing figure) 15,000 By Cash 45,600
To Credit Sales 58,070 By Discount 1,870
By Balance c/d 25,600
73,070 73,070
So total sales = credit sales + cash sales
= ` 58,070 + ` 8,340 = ` 66,410
4.4 Distinction between Business Expenses and Drawings
It has been already stated that often the distinction is not made between business expenses
and drawings. While completing accounts from incomplete records, it is necessary to scan the
business transactions carefully to identify the existence of drawings.
The main items of drawings are:
• rent of premises commonly used for residential as well as business purposes ;
• common electricity and telephone bills ;
• life insurance premiums of proprietor/partners paid from business cash ;
10.18
© The Institute of Chartered Accountants of India
Accounting
• household expenses met from business cash ;
• private loan paid to friends and relatives out of business cash ;
• personal gifts made to any friends and relatives out of business cash ;
• goods or services taken from the business for personal consumption ;
• cash withdrawals to meet family expenses.
So it is necessary to scan the summary of cash transactions, business resources and their
utilisation to assess the nature of drawings and its amount.
4.5 Fresh Investment by proprietors / partners: Like drawings, often fresh investments made
by proprietors’ partners are not readily identifiable. It becomes necessary to scan the business
transactions carefully. Apart from direct cash investment, fresh investments may take the following
shape:
• Money collected and put in the business on maturity of Life Insurance Policy of the proprietors;
• Interest and dividend collected and put in the business of personal investment of the
proprietors;
• Income from non-business property collected and put in the business.
Unless these items are properly identified and segregated, business income will be inflated and
proper statement of affairs cannot be prepared.
Illustration 6
The following information relates to the business of Mr. Shiv Kumar, who requests you to
prepare a Trading and Profit & Loss Account for the year ended 31st March, 2011 and a
Balance Sheet as on that date:
(a) Balance as on 31st Balance as on 31st
March, 2010 March, 2011
` `
Building 3,20,000 3,60,000
Furniture 60,000 68,000
Motorcar 80,000 80,000
Stocks – 40,000
Bills payable 28,000 16,000
Cash and Bank balances 1,80,000 1,04,000
Sundry Debtors 1,60,000 –
Bills receivable 32,000 28,000
Sundry Creditors 1,20,000 –
10.19
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
(b) Cash transactions during the year included the following besides certain other items:
` `
Sale of old papers and miscellaneous Cash purchases 48,000
income 20,000 Payment to creditors 1,84,000
Miscellaneous Trade expenses Cash sales 80,000
(including salaries etc.) 80,000
Collection from debtors 2,00,000
(c) Other information:
• Bills receivable drawn during the year amount to ` 20,000 and Bills payable accepted `
16,000.
• Some items of old furniture, whose written down value on 31st March, 2010 was ` 20,000
was sold on 30th September, 2010 for ` 8,000. Depreciation is to be provided on Building
and Furniture @ 10% p.a. and on Motorcar @ 20% p.a. Depreciation on sale of furniture to
be provided for 6 months and for additions to Building for whole year.
• Of the Debtors, a sum of ` 8,000 should be written off as Bad Debt and a reserve for
doubtful debts is to be provided @ 2%.
• Mr. Shivkumar has been maintaining a steady gross profit rate of 30% on turnover.
• Outstanding salary on 31st March, 2010 was ` 8,000 and on 31st March, 2011 was `
10,000 on 31st March, 2010. Profit and Loss Account had a credit balance of ` 40,000.
• 20% of total sales and total purchases are to be treated as for cash.
• Additions in Furniture Account took place in the beginning of the year and there was no
opening provision for doubtful debts.
Solution
Trading and Profit and Loss Account of Mr. Shiv Kumar
for the year ended 31st March, 2011
` `
To Opening stock By Sales 4,00,000
(balancing figure) 80,000 By Closing stock 40,000
To Purchases 2,40,000
To Gross profit c/d
@ 30% on sales 1,20,000 _______
4,40,000 4,40,000
To Miscellaneous By Gross profit b/d 1,20,000
expenses (` 80,000 – 82,000 By Miscellaneous receipts 20,000
` 8,000 + ` 10,000) By Net loss transferred to 25,840
Capital A/c
10.20
© The Institute of Chartered Accountants of India
Accounting
To Depreciation:
Building ` 36,000
Furniture ` 7,800
(` 6,800 + ` 1,000)
Motor Car ` 16,000 59,800
To Loss on sale of
furniture 11,000
To Bad debts 8,000
To Provision for doubtful
debts 5,040
1,65,840 1,65,840
Balance Sheet of Mr. Shivkumar
as on 31st March, 2011
Liabilities ` ` Assets ` `
Capital as on 1st April, 2010 7,16,000 Building 3,20,000
Add: Addition 40,000
during the year
Profit and Loss A/c Less: Provision for 3,60,000
Opening balance 40,000
Less: Loss for the depreciation 36,000 3,24,000
year 25,840 14,160 Furniture 60,000
Sundry creditors 1,12,000 Less: Sold during 20,000
the year
Bills payable 16,000 40,000
Outstanding salary 10,000 Add: Addition
during the year 28,000
68,000
Less: Depreciation 6,800 61,200
Motor car (at cost) 80,000
Less: Depreciation 16,000 64,000
Stock in trade 40,000
Sundry debtors 2,52,000
Less: Provision for
doubtful debts @ 5,040 2,46,960
2%
Bills receivable 28,000
Cash in hand and at bank 1,04,000
8,68,160 8,68,160
10.21
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Working Notes:
Sundry Debtors Account
` `
To Balance b/d 1,60,000 By Cash/Bank A/c 2,00,000
To Sales A/c 3,20,000 By Bills Receivable A/c 20,000
By Bad debts A/c 8,000
By Balance c/d (balancing fig.) 2,52,000
4,80,000 4,80,000
Sundry Creditors Account
` `
To Cash/Bank A/c 1,84,000 By Balance b/d 1,20,000
To Bills Payable A/c 16,000 By Purchases A/c 1,92,000
To Balance c/d
(balancing figure) 1,12,000
3,12,000 3,12,000
Bills Receivable Account
` `
To Balance b/d 32,000 By Cash/ Bank A/c 24,000
To Sundry Debtors 20,000 (balancing figure)
A/c
By Balance c/d 28,000
52,000 52,000
Bills Payable Account
` `
To Cash/Bank A/c 28,000 By Balance b/d 28,000
(balancing figure) By Sundry Creditors A/c 16,000
To Balance c/d 16,000
44,000 44,000
Furniture Account
` `
To Balance b/d 60,000 By Bank/Cash A/c 8,000
To Bank A/c 28,000 By Depreciation A/c 1,000
By Profit and loss A/c (loss on sale) 11,000
By Depreciation A/c 6,800
10.22
© The Institute of Chartered Accountants of India
Accounting
By Balance c/d 61,200
88,000 88,000
Cash/Bank Account
` `
To Balance b/d 1,80,000 By Misc. trade expenses A/c 80,000
To Miscellaneous By Purchases A/c 48,000
receipts A/c 20,000 By Furniture A/c (balancing
To Sundry Debtors A/c 2,00,000 figure) 28,000
To Sales A/c 80,000 By Sundry Creditors A/c 1,84,000
To Furniture A/c (sale) 8,000 By Bills Payable A/c 28,000
To Bills Receivable A/c 24,000 By Building A/c 40,000
By Balance c/d 1,04,000
5,12,000 5,12,000
Opening Balance Sheet of Mr. Shivkumar
as on 31st March, 2011
Liabilities ` Assets `
Capital (balancing figure) 7,16,000 Building 3,20,000
Profit and loss A/c 40,000 Furniture 60,000
Sundry Creditors 1,20,000 Motor car 80,000
Bills Payable 28,000 Stock in trade 80,000
Outstanding salary 8,000 Sundry Debtors 1,60,000
Bills Receivable 32,000
Cash in hand and at bank 1,80,000
9,12,000 9,12,000
Illustration 7
A. Adamjee keeps his books on single entry basis. The analysis of the cash book for the year
ended on 31st December, 2010 is given below:
Receipts ` Payments `
Bank Balance as on 1st January, 2010 2,800 Payments to Sundry creditors 35,000
Received from Sundry Debtors 48,000 Salaries 6,500
General expenses 2,500
Cash Sales 11,000 Rent and Taxes 1,500
Capital brought during the year 6,000 Drawings 3,600
Interest on Investments 200 Cash purchases 12,000
Balance at Bank on 31st Dec., 2010 6,400
Cash in hand on 31st Dec., 2010 500
68,000 68,000
10.23
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Particulars of other assets and liabilities are as follows:
1st January, 2010 31st December, 2010
Sundry Debtors 14,500 17,600
Sundry Creditors 5,800 7,900
Machinery 7,500 7,500
Furniture 1,200 1,200
Stock 3,900 5,700
Investments 5,000 5,000
Prepare final accounts for the year ending 31st December, 2010 after providing depreciation
at 10 percent on machinery and furniture and ` 800 against doubtful debts.
Solution
Statement of Affairs of A. Adamjee as on 1-1-2010
` `
Sundry Creditors 5,800 Machinery 7,500
A. Adamjee’s Capital 29,100 Furniture 1,200
(balancing figure) Stock 3,900
Sundry Debtors 14,500
Investments 5,000
Bank balance (from Cash Statement) 2,800
34,900 34,900
Ledger Accounts
A. Adamjee’s Capital Account
Dr. Cr.
` `
To Drawings 3,600 Jan. 1 By Balance 29,100
To Balance c/d 31,500 Dec. 31 By Cash 6,000
35,100 35,100
Sales Account
`
Dec. 31 To Trading A/c 62,100 Dec. 31 By Cash 11,000
Dec. 31 By Total Debtors Account 51,100
62,100 62,100
Total Debtors Account
` `
Jan. 1 To Balance b/d 14,500 Dec. 31 By Cash 48,000
Dec. 31 To Credit sales 51,100 Dec. 31 By Balance c/d 17,600
(Balancing figure)
65,600 65,600
Jan. 1 To Balance b/d 17,600
10.24
© The Institute of Chartered Accountants of India
Accounting
Total Creditors Account
` `
Dec. 31 To Cash 35,000 Jan. 1 By Balance b/d 5,800
Dec. 31 To Balance b/d 7,900 Dec. 31 By Credit Purchases
(Balancing figure) 37,100
42,900 42,900
A. Adamjee
Trading and Profit & Loss Account for the year ended 31-12-2010
` `
To Opening Stock 3,900 By Sales 62,100
To Purchases 49,100 By Closing Stock 5,700
To Gross profit c/d 14,800
67,800 67,800
To Salaries 6,500 By Gross Profit b/d 14,800
To Rent and Taxes 1,500 By Interest on Investment 200
To General Expenses 2,500
To Depreciation :
Machinery ` 750
Furniture ` 120 870
To Provision for Doubtful Debts 800
To Balance being profit
carried to Capital A/c 2,830
15,000 15,000
Balance Sheet as on 31st December, 2010
Liabilities ` ` Assets ` `
A. Adamjee’s Capital Machinery 7,500
on 1st January, 2010 29,100 Less : Depreciation 750 6,750
Add : Fresh Capital 6,000 Furniture 1,200
Add : Profit for the year 2,830 Less : Depreciation 120 1,080
37,930
Less : Drawings 3,600 34,330 Stock-in-trade 5,700
Sundry Debtors 17,600
Sundry Creditors 7,900 Less : Provision for
Double Debts 800 16,800
Investment 5,000
Cash at Bank 6,400
Cash in Hand 500
42,230 42,230
10.25
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Illustration 8
From the following data, you are required to prepare a Trading and Profit and Loss Account for
the year ended 31st March, 2011 and a Balance Sheet as at that date. All workings should
form part of your answer.
Assets and Liabilities As on As on
1st April 2010 31st March 2011
` `
Creditors 15,770 12,400
Sundry expenses outstanding 600 330
Sundry Assets 11,610 12,040
Stock in trade 8,040 11,120
Cash in hand and at bank 6,960 8,080
Trade debtors - 17,870
Details relating to transactions in the year:
Cash and discount credited to debtors 64,000
Sales return 1,450
Bad debts 420
Sales (cash and credit) 71,810
Discount allowed by trade creditors 700
Purchase returns 400
Additional capital-paid into Bank 8,500
Realisations from debtors-paid into Bank 62,500
Cash purchases 1,030
Cash expenses 9,570
Paid by cheque for machinery purchased 430
Household expenses drawn from Bank 3,180
Cash paid into Bank 5,000
Cash drawn from Bank 9,240
Cash in hand on 31-3-2011 1,200
Cheques issued to trade creditors 60,270
Solution
Trading and Profit & Loss Account
for the year ending 31st March, 2011
` ` ` `
To Opening Stock 8,040 By Sales
Cash 4,600
To Purchases 59,030 Credit 67,210
Less : Returns 400 58,630 71,810
10.26
© The Institute of Chartered Accountants of India
Accounting
To Gross Profit c/d 14,810 Less : Returns 1,450 70,360
By Closing Stock 11,120
81,480 81,480
To Sundry Expenses (W.N.v) 9,300 By Gross Profit 14,810
To Discount 1,500 By Discount 700
To Bad Debts 420
To Net Profit to Capital 4,290
15,510 15,510
Balance Sheet of M/s ....
as on 31st March, 2011
Liabilities ` ` Assets `
Capital Sundry Assets 12,040
Opening balance 26,770 Stock in trade 11,120
Add Addition 8,500 Sundry Debtors 17,870
” Net Profit 4,290 Cash in Hand & at Bank 8,080
39,560
Less : Drawings 3,180 36,380
Sundry Creditors 12,400
Outstanding Expenses 330
49,110 49,110
Working Notes:
(i) Cash sales
Combined Cash & Bank Account
` `
To Balance b/d 6,960 By Sundry Creditors 60,270
To Sundries (Contra) 5,000 By Sundries (Contra) 5,000
To Sundries (Contra) 9,240 By Sundries (Contra) 9,240
To Sundry Debtors 62,500 By Drawings 3,180
To Capital A/c 8,500 By Machinery 430
To Sales (Cash Sales By Sundry Expenses 9,570
Balancing Figure) 4,600 By Purchases 1,030
By Balance c/d 8,080
96,800 96,800
(ii) Total Debtors Account
` `
To Balance b/d 16,530 By Bank 62,500
(Balancing figure) By Discount 1,500
To Sales (71,810–4,600) 67,210 By Return Inward 1,450
10.27
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Accounts from Incomplete Records
By Bad Debts 420
By Balance c/d 17,870
83,740 83,740
(iii) Total Creditors Account
` `
To Bank 60,270 By Balance b/d 15,770
To Discount 700 By Purchases 58,000
To Return Outward 400 (Balancing figure)
To Balance c/d 12,400
73,770 73,770
(iv) Balance Sheet as on 1st April, 2010
Liabilities ` Assets `
Capital (balancing figure) 26,770 Sundry Assets 11,610
Sundry Creditors 15,770 Stock in Trade 8,040
Outstanding Expenses 600 Sundry Debtors 16,530
Cash in hand & at bank 6,960
43,140 43,140
(v) Expenses paid in Cash 9,570
Add : Outstanding on 31-3-2011 330
9,900
Less : Outstanding on 1-4-2010 600
9,300
(vi) Due to lack of information deprecation has not been provided on fixed assets.
Illustration 9
Mr. Anup runs a wholesale business where in all purchases and sales are made on credit. He
furnishes the following closing balances:
31-12-2009 31-12-2010
Sundry Debtors 70,000 92,000
Bills Receivable 15,000 6,000
Bills Payable 12,000 14,000
Sundry Creditors 40,000 56,000
Stock 1,10,000 1,90,000
Bank 90,000 87,000
Cash 5,200 5,300
10.28
© The Institute of Chartered Accountants of India
Accounting
Summary of cash transactions during 2009-2010:
(i) Deposited to bank after payment of shop expenses @ ` 600 p.m., wages @ ` 9,200
p.m. and personal expenses @ ` 1,400 p.m. ` 7,62,750.
(ii) Withdrawals ` 1,21,000.
(iii) Cash payment to suppliers ` 77,200 for supplies and ` 25,000 for furniture.
(iv) Cheques collected from customers but dishonoured ` 5,700.
(v) Bills accepted by customers ` 40,000.
(vi) Bills endorsed ` 10,000.
(vii) Bills discounted ` 20,000, discount ` 750.
(viii) Bills matured and duly collected ` 16,000.
(ix) Bills accepted ` 24,000.
(x) Paid suppliers by cheque ` 3,20,000.
(xi) Received ` 20,000 on maturity of one LIC policy of the proprietor by cheque.
(xii) Rent received ` 14,000 by cheque.
(xiii) A building was purchased on 30-11-2007 for opening a branch for ` 3,50,000 and
some expenses were incurred details of which are not maintained.
(xiv) Electricity and telephone bills paid by cash ` 18,700, due ` 2,200:
Other transactions:
(i) Claim against the firm for damage ` 1,55,000 is under legal dispute. Legal expenses `
17,000. The firm anticipates defeat in the suit.
(ii) Goods returned to suppliers ` 4,200.
(iii) Goods returned by customers ` 1,200.
(iv) Discount offered by suppliers ` 2,700.
(v) Discount offered to the customers ` 2,400.
(vi) The business is carried on at the premises owned by the proprietor. 50% of the ground
floor space is used for business and remaining 50% is let out for an annual rent of `
20,000.
Prepare Trading and Profit & Loss A/c of Mr. Anup for the year ended 31-12-2010 and
Balance Sheet as on that date.
10.29
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Solution
Trading and Profit & Loss A/c of Mr. Anup
for the year ended 31-12-2010
` ` ` `
To Opening Stock 1,10,000 By Sales 9,59,750
To Purchases 4,54,100 Less: Sales Return 1,200 9,58,550
Less: Purchases Return 4,200 4,49,900 By Closing Stock 1,90,000
To Gross Profit 5,88,650
11,48,550 11,48,550
To Wages 1,10,400 By Gross Profit 5,88,650
Electricity & Tel. Charges 20,900 By Discount 2,700
To Legal expenses 17,000
To Discount 3,150
To Shop exp. 7,200
To Provision for claims for
damages 1,55,000
To Shop Rent (Notional) 20,000
To Net Profit 2,57,700
5,91,350 5,91,350
Balance-Sheet as on 31-12-2010
Liabilities ` ` Assets `
Capital A/c 2,38,200 Building 3,72,000
Add : Fresh capital introduced Furniture 25,000
Maturity value from LIC 20,000 Stock 1,90,000
Rent 14,000 S. Debtors 92,000
Add : Notional Rent 20,000 Bills Receivable 6,000
Add : Net Profit 2,57,700 Cash at Bank 87,000
5,49,900 Cash in Hand 5,300
Less : Drawing 16,800 5,33,100
Sundry Creditors 56,000
Bills Payable 14,000
Outstanding expenses
Legal Exp. 17,000
Electricity &
Telephone charges 2,200 19,200
Provision for claims for damages 1,55,000
7,77,300 7,77,300
10.30
© The Institute of Chartered Accountants of India
Accounting
Working Notes :
Sundry Debtors A/c
Dr. Cr.
` `
To Balance b/d 70,000 By Bill Receivable A/c-
To Bill Receivable A/c-Bills Dishonoured 3,000 Bills Accepted by customers 40,000
To Bank A/c-Cheque dishonoured 5,700 By Bank A/c -
To Credit sales (Balancing Figure) 9,59,750 Cheque received 5,700
By Cash 8,97,150
By Return inward A/c 1,200
By Discount A/c 2,400
By Balance c/d 92,000
10,38,450 10,38,450
Bills Receivable A/c
` `
To Balance b/d 15,000 By S. Creditors A/c
To S. Debtors A/c Bills accepted 40,000 Bills endorsed 10,000
By Bank A/c 19,250
By Discount A/c 750
(Bills discounted)
By Bank
Bills Collected on Maturity 16,000
By S. Debtors
Bills dishonoured (Bal. Fig) 3,000
By Balance c/d 6,000
55,000 55,000
Sundry Creditors A/c
` `
To Bank 3,20,000 By Balance c/d 40,000
To Cash 77,200 By Credit purchase
(Balancing figure) 4,54,100
To Bill Payable A/c 24,000
To Bill Receivable A/c 10,000
To Return Outward A/c 4,200
To Discount Received A/c 2,700
To Balance b/d 56,000
4,94,100 4,94,100
10.31
© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Bills Payable A/c
` `
To Bank A/c Balance figure 22,000 By Balance b/d 12,000
To Balance c/d 14,000 S. Creditors A/c
Bills accepted 24,000
36,000 36,000
Summary Cash Statement
Cash Bank Cash Bank
` ` ` `
To Balance b/d 5,200 90,000 By Bank 7,62,750
To S. Debtors (Bal. Fig) 8,97,150 By Cash 1,21,000
To Cash 7,62,750 By Shop exp. 7,200
To Bank 1,21,000 By Wages 1,10,400
By Drawing A/c 16,800
To S. Debtors 5,700 By Bills Payable 22,000
To Bills Receivable 19,250 By S. Creditors 77,200 3,20,000
To Bills Receivable 16,000 By Furniture 25,000
To Capital (maturity
value of LIC policy) 20,000 By S. Debtors 5,700
To Capital (Rent By Electricity
received) 14,000 & Tel. Charges 18,700
By Building (Bal. fig) 3,72,000
By Balance c/d 5,300 87,000
10,23,350 9,27,700 10,23,350 9,27,700
Statement of Affairs as on 31-12-2009
Liabilities ` Assets `
S. Creditors 40,000 Stock 1,10,000
Bills Payable 12,000 Debtors 70,000
Capital: Balancing figure 2,38,200 Bills Receivable 15,000
Cash at Bank 90,000
Cash in Hand 5,200
2,90,200 2,90,200
Illustration 10
AVL is an unemployed science graduate with typewriting qualification. Being unable to get
employment for more than ` 500 p.m. he decided to start his own typewriting institute. He
approached U.B.C. Bank which sanctioned him a loan of ` 20,000 on 1-1-2010. His father
gifted him ` 5,000 on 1-1-2010. He purchased 6 typewriters worth ` 24,000.
10.32
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Accounting
Unable to understand the accounts properly, he seeks your help in preparing a Profit and Loss
Account and Balance Sheet relating to the year ending 31-12-2010. His Pass Book reveals the
following:
`
(a) Expenses of the Institute 8,400
(b) Salary to self 4,000
(c) Monthly Fees Collected 32,700
(d) Examination Fees Collected 4,200
The following are the additional details available:
(1) During the year AVL purchased a second-hand cycle costing ` 400 from a student who
owed monthly fees of ` 100. The balance was paid. The cycle is used for the institute only.
(2) AVL helped a friend by encashing a cheque for ` 1,000 which was dishonoured. The
friend has so far repaid only ` 400.
(3) AVL has taken ` 600 per month for personal expenses in addition to his salary.
(4) AVL runs the institute from his house for which a rent of ` 600 p.m. is paid. 50% may
reasonably be allocated for his own living.
(5) The following are outstanding as at end of 31-12-2010
`
(a) Fees Receivable 2,200
(b) Expenses Payable 1,000
(c) Salary to Self for Nov. and Dec.,
(d) Stock of stationery on hand 200
(6) Provide Depreciation 20% on typewriters and cycle.
(7) The loan from Bank is repayable at ` 500 p.m. from the beginning of July onwards.
Interest is payable at 12% per annum in addition to instalments for principal.
(8) Assume that all transactions are routed through Bank and no cash is handled.
Solution
Profit & Loss Account of AVL for the year ending
31st December, 2010
` ` `
To Sundry Expenses 8,400 By Fees earned 35,000
Add : Outstanding 1,000 9,400 By Examination fee 4,200
To Rent 3,600 By Stock of Stationery 200
To Depreciation
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© The Institute of Chartered Accountants of India
Accounts from Incomplete Records
Typewriters 4,800
Cycle 80 4,880
” Interest on Loan 2,295
” Net Profit transferred
to Capital A/c 19,225 --------
39,400 39,400
Balance Sheet of Mr. AVL as on 31st Dec., 2010
Liabilities ` ` Assets ` `
Capital 5,000
Add : Net Profit 19,225 Typewriters 24,000
24,225 Less : Dep. 4,800 19,200
Less : Drawings 14,800 9,425 Cycle 400
Less : Dep. 80 320
Bank loan 17,000 Stock of stationery 200
Expenses payable 1,000 Fees receivable 2,200
Loan to friend 600
Cash at bank 4,905
27,425 27,425
AVL has made a wise decision in starting the Institute. After starting the Institute AVL’s cash
position as well as net profit position is better than the earning from employment.
Working Notes : `
(i) Fees earned 32,700
Add : Due on the closing date 2,200
Adjustment in payment for cycle purchased 100
35,000
(ii) Interest on Bank Loan @ 12% p.a. on `
` 20,000 for Jan. to June 1,200
` 19,500 for July 195
` 19,000 for August 190
` 18,500 for September 185
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Accounting
` 18,000 for October 180
` 17,500 for November 175
` 17,000 for December 170
2,295
(iii) Bank Account
` `
To Capital A/c (Gift) 5,000 By Typewriters 24,000
” Bank Loan 20,000 ” Sundry Expenses 8,400
” Students’ fees 32,700 ” Drawings (salary) 4,000
” Exam. fees 4,200 ” Cycle (Purchase) 300
” Sundries (friend’s Cheque) 1,000 ” Advance (friend’s) 1,000
To Advance (Recovered) 400 ” Sundries (friend’s cheque
dishonoured) 1,000
” Drawings 7,200
” Rent Paid 7,200
” Bank loan (500 × 6) 3,000
” Bank Interest 2,295
” Balance c/d 4,905
63,300 63,300
(iv) Drawings Accounts
` `
To Rent 3,600 By Balance c/d 14,800
To Bank - Cash withdrawal 7,200
To Bank - Taken as salary 4,000
14,800 14,800
(vi) Salaries to proprietor is not considered as an item of expense. Profit is believed to be the
product of capital, labour and management.
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Accounts from Incomplete Records
Summary
• Single entry system is generally found in sole trading concerns or even in partnership
firms to some extent but never in case of limited liability companies on account of
legal requirements.
• There are basically 3 types of single entry systems:
(i) Pure Single Entry
(ii) Simple Single Entry
(iii) Quasi Single Entry
• Single entry system ignores the concept of duality and therefore, transactions are not
recorded in their two-fold aspects.
• Closing Capital = Opening Capital + Additional Capital – Drawings + Profits
• Techniques of obtaining complete accounting information
General techniques
• Derivation of Information from Cash Book
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© The Institute of Chartered Accountants of India