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 1st 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 31st 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 1st 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 31st 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 31st 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 1st 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 31st 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 31st 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 31st 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
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