Define incomplete records .

Incomplete records are the accounting records of a business that does not keep a full set of them. Some transactions have been entered only once, or not at all.

True or False? Keeping incomplete records breaks the accounting principle of duality.

True. Duality requires every transaction to have two entries, and incomplete records are kept with single entries instead.

Why might a business end up with incomplete records?

The owner may lack the technical skills to keep a full set, or it may simply be the business's practice to make single entries . Records can also be lost, damaged or stolen .

What does an owner lose by not keeping a full set of records?

They cannot judge the financial position of the business or compare this year's performance with previous years. Fraud becomes difficult to detect, and banks and lenders cannot readily be given the information they want.

Which four methods recover missing figures from incomplete records?

The four methods, and what each is for: a statement of affairs , for the capital the ledger accounts , for cash, bank, expenses and income the sales and purchases ledger control accounts , for credit sales, credit purchases and the trade receivables and payables mark-up, margin and inventory turnover , for sales, purchases, gross profit and inventory

Define statement of affairs .

A statement of affairs lists a business's assets and liabilities in order to find a missing capital figure . It is used where there is no full set of records, so a statement of financial position cannot simply be drawn up.

Why can a statement of affairs find the capital when the records cannot?

Because the capital is simply what is left when the liabilities are taken away from the assets. Those two are things a business still knows even without a full set of accounting records.

A business's assets total $69 800 and its liabilities $21 100. What capital does the statement of affairs give?

$48 700. The capital is the assets less the liabilities, so $69 800 − $21 100 = $48 700.

Why are drawings added when finding the profit from the capital movement?

Because the drawings have already reduced the closing capital. Adding them back restores the profit the business actually made before the owner took anything out of it.

Why is capital introduced subtracted when finding the profit?

Because it raised the closing capital without the business having earned it. Taking it out again leaves only the increase that the trading itself produced.

Capital was $48 700 at the start and $80 500 at the end, with drawings of $5000 and capital introduced of $10 000. What is the profit?

$26 800. The capital rose by $80 500 − $48 700 = $31 800, and then $31 800 + $5000 − $10 000 = $26 800.

True or False? When a capital account is used to find the result, a profit is the balancing figure on the credit side.

True. A profit balances on the credit side and a loss on the debit side, because a profit increases what the business owes its owner.

How can a ledger account be used to find a value you have not been given?

Draw up the account, enter every figure you do know on its correct side, and then find the balancing figure . That balancing figure is the missing value, and the method works whenever only one figure is unknown.

Which values can a sales ledger control account be used to find?

The credit sales , and the trade receivables at the start or the end of the year. It also gives the receipts from customers, the discount allowed , the sales returns and the irrecoverable debts written off.

Which values can a purchases ledger control account be used to find?

The credit purchases , and the trade payables at the start or the end of the year. It also gives the payments to suppliers, the discount received and the purchases returns .

Trade receivables were $19 200 at the start and $18 400 at the end, and $117 500 was received from customers. What were the credit sales?

$116 700. The receipts plus the closing balance less the opening balance give $117 500 + $18 400 − $19 200 = $116 700.

Trade payables were $20 800 at the start and $16 000 at the end, and $72 600 was paid to suppliers. What were the credit purchases?

$67 800. The payments plus the closing balance less the opening balance give $72 600 + $16 000 − $20 800 = $67 800.

True or False? The credit sales from a control account are the revenue figure for the statement of profit or loss.

False. They are only part of it. The cash sales have to be added as well, since cash sales never pass through the sales ledger at all.

What can a cash book be used to find in incomplete records?

On the payments side, the cash purchases, the expenses, the payments to suppliers and the drawings. On the receipts side, the cash sales, other income, the receipts from customers and any capital introduced.

True or False? A 25% mark-up and a 25% margin give the same gross profit on the same goods.

False. A mark-up is a percentage of the cost of sales , while a margin is a percentage of the revenue . The same percentage applied to different figures gives different results.

Revenue is $50 000 and the gross profit margin is 60%. What is the cost of sales?

$20 000. The margin is a percentage of revenue, so the gross profit is 60% × $50 000 = $30 000, and $50 000 − $30 000 = $20 000.

You know the revenue and the mark-up. How do you find the cost of sales?

Add the mark-up to 100% to get the revenue as a percentage of the cost of sales, then divide the revenue by that percentage. A 20% mark-up makes the revenue 120% of the cost of sales.

Revenue is $126 000 and the mark-up is 20%. What is the cost of sales?

$105 000. The revenue is 120% of the cost of sales, so $126 000 ÷ 120% = $105 000.

How do you find the cost of sales from the rate of inventory turnover?

Multiply the average inventory by the rate. Dividing the cost of sales by the rate gives the average inventory instead, since the two are the other way round.

Average inventory is $67 500, the rate of inventory turnover is 10 times and the mark-up is 33⅓%. What is the revenue?

$900 000. The cost of sales is $67 500 × 10 = $675 000, and the gross profit is 33⅓% × $675 000 = $225 000. Adding the two gives $675 000 + $225 000 = $900 000.

How do you find the purchases once the cost of sales is known?

Rearrange the cost of sales formula to give purchases = cost of sales + closing inventory − opening inventory . That is the last step in recovering a trading section from incomplete records.

IGCSEAccountingCambridge (CIE)Flashcards5. Preparation of Financial StatementsIncomplete Records

Incomplete Records (Cambridge (CIE) IGCSE Accounting): Flashcards

Exam code: 0452 & 0985

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Cards in this collection (30)

Define incomplete records.
Incomplete records are the accounting records of a business that does not keep a full set of them.
Some transactions have been entered only once, or not at all.
True or False?
Keeping incomplete records breaks the accounting principle of duality.
True.
Duality requires every transaction to have two entries, and incomplete records are kept with single entries instead.
Why might a business end up with incomplete records?
The owner may lack the technical skills to keep a full set, or it may simply be the business's practice to make single entries.
Records can also be lost, damaged or stolen.
Complete the sentence about incomplete records:
A $______$ balance cannot be prepared from incomplete records, so the business cannot verify the $______$ accuracy of its ledger accounts.
The completed sentence is:
A trial balance cannot be prepared from incomplete records, so the business cannot verify the arithmetical accuracy of its ledger accounts.
What does an owner lose by not keeping a full set of records?
They cannot judge the financial position of the business or compare this year's performance with previous years.
Fraud becomes difficult to detect, and banks and lenders cannot readily be given the information they want.
Which four methods recover missing figures from incomplete records?
The four methods, and what each is for:
- a statement of affairs, for the capital
- the ledger accounts, for cash, bank, expenses and income
- the sales and purchases ledger control accounts, for credit sales, credit purchases and the trade receivables and payables
- mark-up, margin and inventory turnover, for sales, purchases, gross profit and inventory
Define statement of affairs.
A statement of affairs lists a business's assets and liabilities in order to find a missing capital figure.
It is used where there is no full set of records, so a statement of financial position cannot simply be drawn up.
Why can a statement of affairs find the capital when the records cannot?
Because the capital is simply what is left when the liabilities are taken away from the assets.
Those two are things a business still knows even without a full set of accounting records.
A business's assets total $69 800 and its liabilities $21 100. What capital does the statement of affairs give?
$48 700.
The capital is the assets less the liabilities, so $69 800 − $21 100 = $48 700.
Complete the formula for finding the profit from the movement in capital:
Profit = closing capital − opening capital + $______$ − $______$ .
The completed formula is:
Profit = closing capital − opening capital + drawings − capital introduced.
A positive result is a profit and a negative one a loss.
Why are drawings added when finding the profit from the capital movement?
Because the drawings have already reduced the closing capital.
Adding them back restores the profit the business actually made before the owner took anything out of it.
Why is capital introduced subtracted when finding the profit?
Because it raised the closing capital without the business having earned it.
Taking it out again leaves only the increase that the trading itself produced.
Capital was $48 700 at the start and $80 500 at the end, with drawings of $5000 and capital introduced of $10 000. What is the profit?
$26 800.
The capital rose by $80 500 − $48 700 = $31 800, and then $31 800 + $5000 − $10 000 = $26 800.
True or False?
When a capital account is used to find the result, a profit is the balancing figure on the credit side.
True.
A profit balances on the credit side and a loss on the debit side, because a profit increases what the business owes its owner.
How can a ledger account be used to find a value you have not been given?
Draw up the account, enter every figure you do know on its correct side, and then find the balancing figure.
That balancing figure is the missing value, and the method works whenever only one figure is unknown.
Which values can a sales ledger control account be used to find?
The credit sales, and the trade receivables at the start or the end of the year.
It also gives the receipts from customers, the discount allowed, the sales returns and the irrecoverable debts written off.
Which values can a purchases ledger control account be used to find?
The credit purchases, and the trade payables at the start or the end of the year.
It also gives the payments to suppliers, the discount received and the purchases returns.
Trade receivables were $19 200 at the start and $18 400 at the end, and $117 500 was received from customers. What were the credit sales?
$116 700.
The receipts plus the closing balance less the opening balance give $117 500 + $18 400 − $19 200 = $116 700.
Trade payables were $20 800 at the start and $16 000 at the end, and $72 600 was paid to suppliers. What were the credit purchases?
$67 800.
The payments plus the closing balance less the opening balance give $72 600 + $16 000 − $20 800 = $67 800.
True or False?
The credit sales from a control account are the revenue figure for the statement of profit or loss.
False.
They are only part of it. The cash sales have to be added as well, since cash sales never pass through the sales ledger at all.
Complete the sentence about a business that buys on both terms:
Total purchases = $______$ purchases + $______$ purchases.
The completed sentence is:
Total purchases = credit purchases + cash purchases.
What can a cash book be used to find in incomplete records?
On the payments side, the cash purchases, the expenses, the payments to suppliers and the drawings.
On the receipts side, the cash sales, other income, the receipts from customers and any capital introduced.
True or False?
A 25% mark-up and a 25% margin give the same gross profit on the same goods.
False.
A mark-up is a percentage of the cost of sales, while a margin is a percentage of the revenue. The same percentage applied to different figures gives different results.
Revenue is $50 000 and the gross profit margin is 60%. What is the cost of sales?
$20 000.
The margin is a percentage of revenue, so the gross profit is 60% × $50 000 = $30 000, and $50 000 − $30 000 = $20 000.
You know the revenue and the mark-up. How do you find the cost of sales?
Add the mark-up to 100% to get the revenue as a percentage of the cost of sales, then divide the revenue by that percentage.
A 20% mark-up makes the revenue 120% of the cost of sales.
Revenue is $126 000 and the mark-up is 20%. What is the cost of sales?
$105 000.
The revenue is 120% of the cost of sales, so $126 000 ÷ 120% = $105 000.
Complete the formula for average inventory:
Average inventory = (opening inventory + $______$ inventory) ÷ $______$ .
The completed formula is:
Average inventory = (opening inventory + closing inventory) ÷ 2.
How do you find the cost of sales from the rate of inventory turnover?
Multiply the average inventory by the rate.
Dividing the cost of sales by the rate gives the average inventory instead, since the two are the other way round.
Average inventory is $67 500, the rate of inventory turnover is 10 times and the mark-up is 33⅓%. What is the revenue?
$900 000.
The cost of sales is $67 500 × 10 = $675 000, and the gross profit is 33⅓% × $675 000 = $225 000.
Adding the two gives $675 000 + $225 000 = $900 000.
How do you find the purchases once the cost of sales is known?
Rearrange the cost of sales formula to give purchases = cost of sales + closing inventory − opening inventory.
That is the last step in recovering a trading section from incomplete records.

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