Meaning of Incomplete Records,

Reasons for Incompleteness and Its

Limitations

There can be two ways of maintaining the ​accounting​ records, one is

the double entry system and another is the single entry system. The
records maintained according to the single entry system are known as
Incomplete Records. Usually, small firms like grocery shops, general
stores, food joints, etc. keep their ​books​ on the single entry system.

Meaning of Incomplete Records

In the ​Double entry​ system we keep the books on the basis of the Dual
Aspect Concept i.e. every debit has a respective credit. The firms that
do not keep their accounting books as per this system follow the single
entry system. Under the single entry system, a firm maintains only
cash account and the accounts of the debtors and the creditors
properly.
It does not maintain the accounts of expenses, incomes, ​assets​, and
liabilities properly. Hence, as the information provided by these
records is incomplete, they are known as Incomplete Records.

Reasons for Incompleteness

The proprietor may keep the accounting records on the basis of single
entry due to the following reasons:
 1. He has no knowledge or lack of knowledge about the
accounting principles and concepts.
2. The double entry system is comparatively an expensive way of
maintaining the financial accounts. The accountants may
charge a handsome amount as fees.
3. Maintaining incomplete records consumes less time.
4. It is more convenient to maintain records as per the single entry
system.

Source: shutterstock

Limitations of Incomplete Records

Though maintaining Incomplete Records is easier but it is not a

systematic method of maintaining accounts. Its limitations are as
follows:
 1. We cannot prepare a ​Trial Balance​ to ensure the accuracy of
the accounts in the absence of the double entry system.
2. It fails to ascertain the accurate financial results of the
organization​.
3. Investigation and examination of the profitability, solvency,
and liquidity are difficult. Hence, the outsiders and banks may
not lend money for the expansion of the ​business​.
4. In case of loss by fire or theft claiming the insurance amount
causes great difficulty due to incomplete records and missing
information.
5. Also, convincing the income ​tax​ authorities about the
computed income is difficult in the absence of proper
accounting.

Browse more Topics under Accounts From Incomplete Records

● Ascertainment of Profit and Loss
● Preparing Trading and Profit and Loss and Balance Sheet

Solved Example For You

Q: Enumerate the features of Incomplete Records or Single Entry
System?

Ans: The small sized organizations may not be able to keep their
books as per the double entry system due to lack of resources.
However, sometimes it may so happen that the large-scale
organization also renders incomplete records. This may be due to the
destruction of the records due to fire, natural calamity or theft, etc. Its
features are:

1. It is an unsystematic manner of recording financial

transactions.
2. Under this method, only cash accounts and the personal
accounts of debtors and creditors are maintained properly. The
debtors and creditors may be for goods or assets.
3. The owner may also record his personal transactions in the
Cashbook​, which we need to bifurcate.
4. These accounting records are not comparable due to the lack of
uniformity and their incompleteness.
5. Here, the dependence on the original voucher and bills is high.
As we need to collect all other information and figures from
these original documents only.
 6. Under this system, it is difficult to ascertain the profit and loss
for the year accurately due to the incompleteness of the
records. Also, the ​Balance Sheet​ may not depict the true
financial position.

Ascertainment of Profit and Loss

The accounting records that are not maintained as per the double entry
system but as per single entry are called Incomplete Records. Where
the proprietor maintains incomplete records, he only prepares cash
account, debtors account and creditors account properly. He maintains
all other accounts in a haphazard manner or not maintains them at all.
Thus, in this case, the ascertainment of profit and loss becomes too
difficult.

Ascertainment of Profit and Loss

Every business ​firm​ needs to prepare the financial statements in order

to ascertain the results of its financial operations. It needs to know
whether the ​business​ is yielding profits or not and also it’s financial
position at the end of the year. But, as the records of the entity are
incomplete, for the ascertainment of Profit and Loss needs to prepare
the following:

1. Statement of Affairs at the beginning and at the end of the year

using the Statement of Affairs or Net Worth Method.
2. Trading and Profit and Loss A/c and Balance Sheet using the
conversion method.

Browse more Topics under Accounts From Incomplete Records

● Meaning of Incomplete Records, Reasons for Incompleteness
and Its Limitations
● Preparing Trading and Profit and Loss and Balance Sheet

Preparation of Statement of Affairs

It is a statement that shows all the assets on one side and all the
liabilities on the other side. It is similar to the ​Balance Sheet​. With the
help of this ​statement​, we find the capital employed which is the
difference between the ​assets and liabilities​.
We prepare the Statement of Affairs at the beginning of the year to
ascertain the opening capital and at the end of the year to ascertain the
closing capital. However, the items of assets and liabilities are
ascertained from vouchers, physical count and other relevant
documents.

Performa of Statement of Affairs

Statement of Affairs
As at ……..

Liabilities Amount Assets Amount

Bills Payable Land and Building

Creditors Plant and Machinery

Outstanding Expenses Furniture

Unearned Income Stock

Capital (balancing figure) Debtors

Cash and Bank

Prepaid ​Expenses

Accrued Income
 Capital (balancing figure)

Total xxx Total xxx

Note: When the liabilities are more than assets, then the capital will
have a debit balance.

Source: shutterstock

Preparation of Statement of Profit or Loss

After ascertaining the opening and closing capital with the help of the
Statement of Affairs, the next step is to prepare the Statement of Profit
and Loss. The adjustments relating to the additional capital and
drawings during the year are required to be made for the ascertainment
of Profit and Loss

Performa of Statement of Profit or Loss

Statement of Profit or Loss

For the year ending……..

Particulars Amount

Capital as at the end of the year xx

Add: Drawings during the year xx

Less: Additional capital introduced during the year (xx)

Adjusted capital at the end of the year xxx

Less: Capital as at the beginning of the year (xx)

Profit or Loss made during the year xxx

The positive amount denotes profit while the negative amount denotes
the loss.

Solved Example for You

Question: Kalpana runs a small boutique. She keeps her books on

single entry basis. On 1​st​ April 2017, her records disclose the
following: Sewing Machines ₹50000, Building ₹250000, Stock
₹150000, Cash ₹40000, Bank ₹500000, Debtors ₹80000, Creditors
₹95000, outstanding wages ₹5000. On 31​st​ March 2018 her position is
as follows: Sewing Machines ₹60000, Building ₹250000, Stock
₹200000, Cash ₹60000, ​Bank​ ₹750000, Debtors ₹90000, Creditors
₹75000, outstanding wages ₹2000, advance from customers ₹50000.
She introduced additional ​capital​ of ₹60000 and withdrew ₹10000
every month for her personal expenses. Calculate the profit for the
year.

Solution: In the books of Kalpana

Statement of Affairs as on 1​st​ April 2017

Liabilities Amount Assets Amount

 Creditors 95000 Buildings 250000

Outstanding Wages 5000 Sewing Machines 50000

Capital (Bal. fig.) 970000 Stock 150000

Cash 40000

Bank 500000

Debtors 80000

1070000 1070000

Statement of Affairs as on 31​st​ March 2018

Liabilities Amount Assets Amount

Creditors 75000 Buildings 250000

 Outstanding Wages 2000 Sewing Machines 60000

Advance from customers 50000 Stock 200000

Capital (Bal. fig.) 1283000 Cash 60000

Bank 750000

Debtors 90000

1410000 1410000

Statement of Profit or Loss (For the year ending 31​st​ March 2018)

Particulars Amount

Capital as at the end of the year 1283000

Add: Drawings during the year (10000 x 12) 120000

 Less: Additional capital introduced during the year (60000)

Adjusted capital at the end of the year 1343000

Less: Capital as at the beginning of the year (970000)

Profit or Loss made during the year 373000

Preparing Trading and Profit and Loss

and Balance Sheet

Preparing a ​trading account​ is the first stage in of final accounts of a

trading concern. It determines the gross profit or gross loss of the
concern for that ​accounting​ year. For determining the true result or the
net result of the business, preparing the Trading and Profit and Loss
account is necessary. We prepare these accounts on the last day of the
accounting year​. We consider only direct ​revenue​ and direct expenses
in this account.
Preparing Trading and Profit and Loss and
Balance Sheet

Preparation of Trading Account

For preparing Trading and Profit and Loss Account we need complete
information regarding expenses, ​incomes​, ​assets and liabilities​ of the
concern. In incomplete records, some details are given and some are
missing. Thus, we need to ascertain the missing details in an indirect
manner by using the logic of double-entry.

The most common items that are missing and we have to find out for
preparing Trading and Profit and Loss Account are:

● Opening capital
● Credit Purchases
● Credit sales
● Bills payable accepted
● Bills receivable received
● Payments to creditors
● Payments to debtors
 ● Any other cash/bank related items.

As we know that ​opening capital ​can be obtained by preparing the

statement​ of affairs at the beginning of the year. For other items that
are missing, we can easily obtain them by preparing accounts such as
total debtors and total creditors, total bills receivable and total bills
payable accounts and summary of ​cash​.

Ascertainment of Credit Purchases

Generally, the credit purchase figure is not available from the

incomplete records. It is possible that some other information related
to creditors may also be missing. So, we will prepare the total
creditors to ​account​ so that, credit purchases or any other missing
figure related to creditors, as the case may be, can be ascertained as
the balancing figure.

Ascertainment of Credit Sales

Generally, the figure of credit sales is also not available from

incomplete records. Some other information which is related to
debtors may also be missing. Therefore, we will prepare the total
debtors to account​ so that the number of credit sales or any other
missing figure, as the case may be, can be traced out as the balancing
figure.

Ascertainment of Bills Receivable and Bills Payable

To find out the figure of the bills received during the year, we prepare
Bill’s Receivable account. Also, to find out the figure of the bills
accepted during the year, we prepare the ​Bills Payable account​.

Ascertainment of Missing Information through Summary of Cash

Sometimes, it is possible that the amount paid to creditors or the

amount received from debtors may be missing. Also, the opening or
closing cash or bank balance may be missing. So to ascertain any
missing item of receipt of payment, we prepare a cash book summary.
It shows all receipts and payments during the year and the balancing
figure is the amount of missing item.
In case both amount paid to creditors and that received from debtors
are missing. In that case, we will obtain the amount of any one of
these first through the total creditors or total debtors account. And the
other missing information we will ascertain from the cash book
summary. After the missing figures are obtained, we can prepare the
final accounts straight away or after the preparation of the trial
balance.

Solved Example for You

Q: Miss Krati started business on 1​st​ January 2017, with cash of ₹

25,000, furniture of ₹ 5,000, goods of ₹ 1,000, and machinery worth ₹
10,000. During the year she further introduces the capital of ₹ 10,000
by opening a bank account. From the following information extracted
from her books required for preparing Trading and Profit and Loss
Account and​ Balance Sheet

Receipt from debtors 28,750

Cash sales 22,500

Cash purchases 12,500

Wages 2,500

Salaries 8,750

Trade ​expenses 3,250

Electricity bill of factory 3,750

Drawings 1,500 p.m.

Cash paid to creditors 21,000

Discount allowed 600

 Discount received 1,500

Bad debts written off 650

Closing cash balance 10,000

Miss Krati used goods worth ₹ 1,250 for the private purpose, which is
not recorded by her in the book. Charge depreciation on furniture
@10% and on machinery @20% p.a. On 31​st​ March 2018, debtors,
creditors, and stock in trade were valued as ₹ 35,000, ₹ 17,500, and ₹
12,500 respectively.

Ans:

Trading and Profit and Loss Account

Particulars Amount (₹) Particulars Amount (₹)

To opening stock 10,000 By Sales

To Purchases: Cash sales 22,500

12,50 Credit
Cash purchase 65,000 87,500
0 sales(WN2)

Credit 40,00 By Closing

12,500
purchase(WN3) 0 stock

Less: Drawings of (1,250

51,250
goods )

To Wages 2,500

To Electricity bill of
3,750
factory
To Gross profit 32,500

1,00,000 1,00,000

To Salaries 8,750 By Gross ​profit 32,500

By Discount
To Trade expenses 3,250 1,500
received

To Discount allowed 600

To Bad debts 650

To Depreciation:
 Furniture @10%
500

Machinery @20%
2,500
2,000

To Net profit 18,250

34,000 34,000

Balance Sheet as at 31​st​ December 2017

Amount
Liabilities Amount (₹) Assets
(₹)

Capital (WN1) 50,000 Cash in hand 10,000

 Cash at the
Add: Net profit 18,250 6,500
bank​(WN4)

Add: Additional capital 10,000 Stock 12,500

Less: Drawings (1,250) Debtors 35,000

Furniture
Cash (18,000)
5,000

Less: depreciation
Goods 59,000 4,500
(500)

Machinery
Creditors 17,500
10,000

Less: depreciation
8,000
(2,000)
 76,500 76,500

Working notes:

1] Statement of Affairs as on 31​st​ December 2017

Amount
Liabilities Amount (₹) Assets
(₹)

Capital (balancing figure) 50,000 Cash 25,000

Stock 10,000
 Furniture 5,000

Machinery 10,000

50,000 50,000

2] Debtors Account

Amount
Date Particulars Amount(₹)) Date Particulars
(₹)

To Balance b/d NIL By Cash 28,750

 By Discount
To Sales (credit) 65,000 600
allowed

(balancing figure) By Bad debts 650

By Balance c/d 35,000

65,000 65,000

​3] Creditors Account

 Date Particulars Amount(₹) Date Particulars Amount(₹)

To Cash 21,000 By Balance b/d NIL

To Discount
1,500 By Purchases credit 40,000
received

To Balance c/d 17,500 (balancing figure)

40,000 40,000

4] Summary of Cash
Receipts Amount(₹) Payments Amount(₹)

To Balance b/d 25,000 By Purchases 12,500

To Capital introduced (bank) 10,000 By Wages 2,500

To Debtors 28,750 By Salaries 8,750

To Sales 22,500 By Trade expenses 3,250

By Electricity bill for

3,750
factory

By Creditors 21,000
 By Drawings (1,500
18,000
p.m.)

By Balance c/d – cash 10,000

By Cash at Bank (Bal.

6,500
fig.)

86,250 86,250

Customize your course in 30 seconds

Which class are y