ACCA 1.1 INCOMPLETE RECORDS
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Transcript of ACCA 1.1 INCOMPLETE RECORDS
ACCA 1.1INCOMPLETE RECORDS
Not all businesses keep a proper set of accounting records?
Small businesses, such as shopkeepers, market stall holders, hairdressers, landscape gardeners, do not always have the knowledge, expertise and time to keep a complete set of accounting records.
However, these businesses will need to have financial statements prepared annually (for tax purposes if nothing else).
So how can the financial statements be prepared if the
bookkeeping records are inadequate or incomplete?
Four basic techniques used for incomplete records
1. Construction of opening & closing balance sheets or capital
2. Construction of a cash and / or bank summary
3. Construction of sales and purchase figures….usually done via control accounts
4. Use of gross / net profit percentage
Give me four reasons why capital might change.
1.
2.
3.
4.
Construction of opening & closing balance sheets or capital
Introduction of extra capital
Withdrawal of capital
Profit earned by the business
Loss suffered by the business
PROFIT OR LOSS = THE INCREASE OR DECREASE IN CAPITAL.
We can calculate profit when we have details of the opening and closing capital.
Activity 1The opening capital of Edna Clouds at 1 Jan 2005 was £2,000. At 31 December 2005 the capital figure was £8,500.
How much profit has been earned during the year?
Opening capital 2,000
Closing capital 8,500
Profit (must be) 6,500
We can calculate profit when we have details of the opening and closing capital and have details of capital introduced and withdrawn during the year.
Activity 2The opening capital of Ivy Cladwall at 1 Jan 2005 was £16,000. On 1 July 2005 she introduced further capital of £4,000 and during the year withdrew a total of £8,000. At 31 December 2005 the capital figure was £30,000.
How much profit has been earned during the year?
Opening capital 16,000
Capital introduced 4,000
Withdrawals - 8,000
12,000
Closing capital 30,000Profit (must be) 18,000
Activity 3The opening capital of Ivor Pain at 1 Jan 2005 was £32,000. During the year he withdrew £1,000 a month. At 31 December 2005 the capital figure was £18,000.
How much profit or loss has been earned or suffered during the year?
Opening capital 32,000
Withdrawals -12,000
20,000
Closing capital 18,000Loss (must be) - 2,000
MCQ December 2005: 1
MCQ December 2005: 1Detail £ Detail £
Drawings 68000 net assets (capital) b/d 186000
Drawings 20000 Capital introduced 50000
net assets (capital) c/d 274000 Profit 126000
362000 362000
Activity 4What do we mean by net assets?
What is the accounting equation?
PROFIT OR LOSS WHEN THE NET ASSETS AT THE BEGINNING AND END OF THE YEAR ARE KNOWN.
FIXED ASSETS + CURRENT ASSETS – LT LIABILITIES – CURRENT LIABILITIES
ASSETS – LIABILITIES = CAPITAL + PROFIT - DRAWINGS
Activity 5Eileen Dover has not kept proper bookkeeping records but has kept notes in diary form of the transactions of her business. She is able to give you details of her assets and liabilities as at 31 December 2004 and 31 December 2005:
Dec 2004 Dec 2005 £ £
Van 2,000 1,600 (after depreciation) Fixtures 1,400 1,260 (after depreciation) Stock 1,700 1,980 Debtors 1,900 2,880 Bank 2,200 3,400 Cash 200 400 Creditors 400 600 Loan 1,200 800 Drawings 1,800
Draw up a Statement of Affairs at each balance sheet date.
December 2004 December 2005 £ £ £ £
Van Fixtures
Stock Debtors Bank Cash
Creditors
Loan
Capital Profit Drawings
2,000 1,400 3,400
1,700 1,900 2,200 200 6,000 - 400
5,600-1,200 7,800
7,800
7,800
1,600 1,260 2,860
1,980 2,880 3,400 400 8,660
8,060- 80010,120
7,800
- 600
10,120-1,800 4,120
This method of calculating profit is unsatisfactory and should only be done in exceptional circumstances.
A full set of financial statements should be drawn up from the available information.
Construction of a cash or bank summary
If we know the opening and closing bank account balances we might be able to calculate a missing figure for sales receipts or purchases
Construction of a cash or bank summary example
Donald does not keep proper accounting records. His bank statements show that his opening bank balance was £100 and his closing bank balance was £400.
He knows that his payments to suppliers were£1,200 and he took drawings of £700 (paid by cheque) but he has no idea of his receipts from debtors?
Date Detail £ Date Detail £
Bal b/d 100 Creditors 1200Debtors 2200 Drawings 700
Bal c/d 4002300 2300
T Account
Construction of an opening cash or bank summary example
We now know our receipts from debtors, which might be the sales figureOr could help us calculate the sales figure
Construction of sales and purchases
Construction of sales and purchase figures….usually done via control accounts
Construct a control account Control accounts essentially contain 4
items..1. Opening debtors2. Closing debtors3. Credit sales4. Receipts from debtors
If we know 3 items , we can calculate the fourth!!
Construction of sales and purchases
Donald does not keep proper accounting records. He knows that his opening debtors were £500 and his closing debtors were £400.
He has already reconstructed his bank account and knows that receipts from debtors were £2,200. He needs to calculate his sales
Detail £ Detail £Bal b/d 500 Bank receipts 2200Sales 2100
Bal c/d 4002600 2600
Debtors control
Construction of debtors control account to calculate sales
June 2004 MCQ’s 9 & 10
Use of gross / net profit percentage
Missing figures can also be calculated using gross or net profit percentages
If we know that gross profit is 20% of sales, we can calculate the cost of sales if we know our sales figure.
If we know cost of sales and our opening and closing stock, we can easily calculate purchases
Use of gross / net profit percentage example
Duck has sales of £100. He knows that his gross profit percentage is 20% of sales.
His opening stock was £20 and his closing stock was £25. What is Ducks purchases?
1. C.O.S is 80% of £100 = £802. £20 + purchases? - £25 = £803. Purchases = £85
Question 1