Topic:

Incomplete Records
 Objectives
• At the end of the session, students should be able
to:
 Explain incomplete records
Calculate opening calculate using a statement of
affairs
Compute gross profit using the margin approach
Compute gross profit using the markup approach
Prepare final accounts from incomplete records
 Incomplete Records
Many businesses do not use the double entry system to
record their business transactions. Even if they wanted
to do so, a large number of owners would not know
how to write up double entry records.
Their book keeping effort would be confined to
cashbook supported by subsidiary records.
This partial accounting system is referred to as
incomplete records.
Incomplete records strive in a manual accounting
environment.
Examples of businesses using incomplete records are
small and medium size businesses, retailers and
wholesalers.
 Incomplete records
• Moving from incomplete records to double
entry

• Firstly, let us examine the statement of

affairs- it is used to ascertain the financial
position at the beginning of the accounting
period. It is also referred to as a statement of
financial position or balance sheet.
 Incomplete records
• Next, the control accounts.
• There are two types of control accounts.
• One is known as sales ledger control account
and the other is known as purchases ledger
control account.
• The sales ledger control account is used to
determine the sales figure.
• The purchases ledger control account is used
to determine the purchases figure.
• They look like any other T account.
 Incomplete records
• Using the Accounting Equation to derive opening
capital or assets or liabilities.

• The formula for Accounting Equation is as

follows: ASSETS= CAPITAL + LIABILITIES
or A=C + L
CAPITAL is also referred to as EQUITY
 Example -Incomplete records
• Using Statement of Affairs to determine opening
capital
Example: H. Williams assets and liabilities on 31 st
December 2014 were as follow:
Assets: Van $6,000, Fixtures $1,800, Inventory
$3,000, Accounts Receivable $4,100, Bank $4,800
and Cash $200.

Liabilities: Accounts payable $1,200, Loan $3,500

Requirement: Calculate the opening capital as at 31 st
December 2014
• Using the Accounting Equation approach to
determine the opening capital

• Firstly, sum all assets (A) 19,900

• Secondly, sum all liabilities (L) (4,700)
• Opening capital (C ) 15,200
SOLUTION
H Williams
Statement of Affairs
as at 31 December 2014
Non current assets
Van 6,000
Fixtures 1,800
7,800
Current assets
Inventory 3,000
Accounts receivable 4,100
Bank 4,800
Cash 200 12,100
Total Assets (A) 19,900
Current liabilities
Accounts payable 1,200
Loan 3,500
Total liabilities (L) (4,700)
NET ASSETS 15,200
OPENING CAPITAL ( C) 15,200
LECTURE QUESTION
The following balances were obtained from the books of Farmer Brown’s Cricket Farm at the dates given

ITEMS 01 JAN 2013 31 DEC 2013

Cash 600 750
Stock 8,000 9,020
Motor Vehicle 20,000 22,000
Machinery 10,000 20,000
Building 40,000 40,000
Creditors 3,000 3,500
Debtors 5,000 4,200
Loan 20,000 15,000
During the year Farmer Brown took goods totaling $500 and cash of $1000 for personal use.

Required :
Derive (a) Farmer Brown’s opening capital and closing capital (b) the net income for the year.
 CASH BOOK for the period

Bal b/d 600 Insurance 3,000

Sales 70,000 Purchases 50,000
Receipt from Cr Customers 16,000 Machinery 10,000
Commission Received 10,000 Drawings 1,000
Pmt to Creditors 20,050
Loan Repayment 5,000
Motor Vehicles 2,000
Motor Repairs 1,800
Office Expenses 3,000
Bal c/d 750
-------
------- 96,600
96,600 =====
=====
 SOLUTION
Statement of Affairs

01/01/2013 31/12/2013
Non current assets

Building 40000 40000

Machinery 10000 20000
Motor Vehicle 20000 22000
70000 82000
Current assets
Inventory 8000 9020
Debtors/Accounts Receivable 5000 4200
Cash 600 750
Total assets (A) 83600 95970
Owner’s Equity/Capital (C ) ? ?
Liabilities
Loan 20000 15000
Creditors/Accounts payable 3000 3500
Total equity and liabilities (C + L) 83600 95970
 SOLUTION:(a) To determine capital
01/01/2013 31/12/2013
Total assets 83,600 95,970
less:
Loan (20,000) (15,000)
Creditors/accounts (3,000) (3,500)
payable
CAPITAL 60,600 77,470
 SOLUTION:To derive Net income or Profit for the period

Capital at the end 77470

Add: drawings (1000+500) 1500

Less: capital at the beginning (60600)

NET INCOME/PROFIT 18370

Using sales ledger control account to derive sales figure

SLCA

bal b/f 5,000

SALES 15,200 C/B 16,000

bal b/d 4,200

20,200 20,200

SALES

Trading Account 85,200 SLCA 15,200

C/B 70,000

85,200 85,200
Using purchases ledger control account to derive purchases figure

PLCA

bal b/f 3,500

CB 20,500 Purchases 20,000

bal b/d 3,000

23,500 23,500

PURCHASES

PLCA 20,000 Trading Account 70,000

C/B 50,000

70,000 70,000
Income statement to calculate Net Income /
Profit
For the period ended 31 December 2013
Sales 85,200
Cost of sales
Opening inventory 8,000
Purchases 70,050
Closing inventory (9,020) (69,030)
Gross Profit 16,170
Other revenue
Commission 10,000
Expenses
Insurance 3,000
Motor repairs 1,800
Office expense 3,000 (7,800)
NET INCOME 18,370
Balance Sheet

as at 31 December 2013

Non current assets

Building 40,000

Machinery 20,000

Motor Vehicle 22,000

82,000
Current assets

Inventory 9,020
Debtors/Account Receivable 4,200

Cash 7,50 13,970

Total assets 95,970

Owner’s equity
Capital 60,600

Net Income 18,370

Drawings (1,500) 77,470

Liabilities
Loan 15,000
Creditors/Accounts payable 3,500 18,500

Total equity and liabilities 95,970

 Determining gross profit using margin approach

• Margin approach can be used to determine gross profit

• Many owners of businesses use this approach to
calculate gross profit
• Margin is based on sales
• Margin is expressed in per cent (%)

• The formula for Margin is as follows:

(Gross Profit/ Sales) X 100
 Determining gross profit using markup approach
• Markup approach can be used to determine gross
profit
• Many owners of businesses use this approach to
calculate gross profit
• Markup is based on cost of sales
• Markup is expressed in per cent (%).
• The formula for Markup is as follows:
(Gross Profit/ Cost of Sales) X 100
Lecture question
• On 1st January, Farmer Brown had a stock
of goods valued at 8,000. During the year
his sales amounted to 85,200. His purchases
amounted to 70,050, with a mark up is
23%. Heavy rains at the end of the year
destroyed a portion of his closing stock.
What was left was valued at 2,020.

• Requirement: In preparation of his insurance

claim, he has asked for help to ascertaining
the value of stock destroyed and gross profit.
Solution
For this question, first thing to do is to convert
Markup to Margin

Markup is 23%

To convert Markup to Margin: 0.23

(1+0.23)

Therefore, MARGIN= 0.23/1.23

• Firstly, find the Gross Profit:

Using Margin approach:(0.23/1.23) X 85200

GROSS PROFIT = 15931.71

Then, Cost of Sales

Sales less Gross Profit
85200 – 15931.71
COST of SALES =69268.29
Place these two figures in the Trading Account to
determine the closing inventory and inventory
destroyed by flood.
 To ascertain gross profit using margin approach

• SOLUTION
Sales 85,200

Cost of sales
Opening Inventory 8,000

Purchases 70,050
Closing Inventory (8,781.71) (69,268.29) 85,200-15,931.71
Gross Profit 15,931.71 (0.23/1.23*85,200)
or (0.23 X
69,268.29
• The closing inventory is calculated in the
following manner

• Opening inventory + purchases – Cost of Sales

8,000+70,050 – 69,268.29
8,781.71
• The value of inventory destroyed can be
determined in the following manner

Closing inventory less inventory saved

8781.71 – 2020
6761.71
• Example
• On 1st December 2014, Mary had inventory
valuing $45000. During the period, purchases
was $100,000. On 31st December 2014, the
closing inventory was $ 55,000. The business
usually maintains a margin of 25%.
• Requirement: Calculate the sales amount and
gross profit
• SOLUTION
• Sales can be determined in the following manner
• Sales - Cost of Sales =Gross profit
• Margin =25%
• Let sales be x, the unknown
• Therefore, Gross profit is 0.25x
• x - (45,000+ 100,000 – 55,000) =0.25x
• x-0.25x= 90,000
• 0.75x = 90,000
• x = 90,000/0.75
• x = 120,000
• Therefore SALES = $120,000
• Gross profit = 120,000*0.25 = 30,000
Solution
For this question, first thing to do is to convert
Margin to Markup

Margin of 25% can be expressed as ¼ or 0.25

To convert Margin to Markup: 1

(1-4) = 1/3
or
0.25= 0.25/0.75 =1/3 (1-0.25)
or
25
1+25 =25/125 =1/3
 To ascertain gross profit using margin approach

• SOLUTION

Sales 120,000 (90,000+30,000)

Cost of sales
Opening Inventory 45,000

Purchases 100,000
Closing Inventory (55,000) (90,000)
Gross Profit 30,000 (1/3 X 90,000)
 Summary
• You have learnt the following:
• What is incomplete records?
• Statement of affairs
• Control accounts
• Margin
• Markup
• Determine gross profit using markup or
margin