Single Entry

O’LEVEL HANDOUTS

INCOMPLETE RECORDS In this chapter, you will learn about handling problems of incomplete records. You will how to implement  different accounting tools and equation to identify the profit of a period, when only opening and closing  figures and drawings are known. You will learn how to find the figures for cash drawings or the figures  for cash expenses when all other cash receipts and payments are known. You will be able to identify the total sales and purchase from incomplete records. (Frank Wood, Business Accounting)

Why to learn ‘Incomplete Records’

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Many small businesses like coffee shop, internet café and others do no maintain double entry systems. This is because they are not even familiar with this concept of accounting. At best these businesses maintain a cashier copy, and keep track of daily basis sales revenue. However, they must do have to prepare financial statement and need to track down the actual profit. Now think of how this could be calculated in the bookkeeping records are inadequate or incomplete? Single entry is going be a solution to such problems.

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Then, what do you need to learn to find solution from ‘Incomplete Records’ 

Finding sales figures using debtor’s account



Finding purchase figures using creditor’s account.



Finding actual expense or income incurred using different adjustments.



Finding yearend cash/bank balance using data from total receipts and payments.



Finding business capital  using equation.



Finding profit or loss using tools from profitability and liquidity ratios.



Complete the financial statement using all the findings mentioned above.

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O’LEVEL HANDOUTS

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FINDING SALES FIGURES: This may include both cash and credit sales for the given period, Cash sales figures are normally given on the debit side of cash book. To obtain credit sales figures you need to prepare a debtors account using amount received from debtors from cash book and other related adjustments. In many cases you may need to considered amount withdrawn out of the cash taking for obtaining the total sales figures.

DEBTORS ACCOUNT £ Balance b/d

xxx

Credit Sales

xxx

£ Bank

xxx

Discount allowed

xxx

Bad Debts

xxx

Return inward/ Sales return

xxx

Contra: Purchase Ledger

xxx

Balance c/d

xxx

xxx Balance b/d

xxx

xxx

Total Sales = Credit Sales + Cash Sales

The following examples will help you to understand how any drawings out of the cash takings are used to obtain total sales figures.

X

Mr. X deposited £200 of cash taking except £50 which he spent for his own personal use.

WHAT IS THE TOTAL SALES FIGURES £200 + £50 = £250

Therefore:

BANK

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Total Sales = Credit Sales + Cash Sales + Withdrawn items from Sales

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O’LEVEL HANDOUTS

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FINDING PURCHASE FIGURES: This may include both cash and credit purchase for the given period, Cash purchase figures are normally given on the credit side of cash book. To obtain credit purchase figures you need to prepare a creditors account using amount paid to supplier from cash book and other related adjustments.

CREDITORS ACCOUNT £

`

Bank

xxx

Discount received

xxx

Return outwards

xxx

Contra: Sales Ledger

xxx

Balance c/d

xxx

£

Balance b/d

xxx

Credit Purchase

xxx

xxx Balance b/d

xxx

Total Purchase = Credit Purchase + Cash Purchase

Worked Example for your understanding how does this work to obtain total purchase for given period:

GIVEN:

Creditors Account

 Opening creditors £5000

£  Cash purchase £12300  Payment to supplier £35600  Discount received £400

Bank 

35600

Disc received 

400

Return out 

800

Balance c/d 

3400

 Purchases return £800

£ Balance b/d 

5000

Credit Purchase 

35200

40200

40200 Balance b/d

 Closing creditors £3400





TOTAL PURCHASE  = £35200 + £12300 =

£47500

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3400

O’LEVEL HANDOUTS

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OBTAINING ACTUAL EXPENSES AND INCOMES INCURRED: In according to accrual concepts any expenses, income or revenue must be recognized within the financial period, doesn’t matter how much is paid or not yet paid. As a result the amount mention in cash book must be adjusted with prepaid and outstanding bill to determine how much to transfer to profit & loss account. It is wise if you prepare the expenses and income account to adjust the actual expenses or incomes incurred.

EXPENSES ACCOUNT £

`

£

Balance b/d (advance)

xxx

Balance b/d (owing)

Bank

xxx

Profit & Loss



xxx

xxx

Balance c/d (advance)



xxx



Balance c/d (owing)

xxx

xxx

xxx

INCOME ACCOUNT £ Balance b/d (owing)

£

xxx

Balance b/d (advance)

xxx xxx

Profit & Loss



xxx

Bank

Balance c/d (advance)



xxx

Balance c/d (owing)



xxx

Profit & Loss extraction: Gross Profit

(-) Expenses

£ xxx

 

xxx

Balance Sheet extraction: £

(+) Income

xxx

xxx (xxx)

£

Fixed Assets:

£ xxx

Current Assets: Expense Prepaid



xxx

Income Owing



xxx

Expenses Owing



xxx

Income Prepaid



xxx

Current Liabilities:

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O’LEVEL HANDOUTS

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OBTAINING CASH/BANK BALANCE: Cash book plays a very important role in solving incomplete records. Most the business who do not keep proper records, at least maintain a receipts and payments account, where you can find how much cash is paid and how much is received from different source of incomes. Many time candidates may require to find the closing cash balance to determine current assets or overdraft as current liabilities.

CASH BOOK £

£

Balance b/d

1

xxx

Balance b/d

Sales

2

xxx

Purchase

7

xxx

Debtors

3

xxx

Creditors

8

xxx

Loan

4

xxx

Expense

9

xxx

Capital

5

xxx

Fixed Assets

10

xxx

Other incomes

6

Drawings

11

xxx

Loan interest

12

xxx

Repayment of loan

13

xxx

Balance c/d

14

xxx

Balance b/d

15

xxx

xxx

xxx Balance b/d

xxx

Balance b/d

xxx

Explanation for each of the entries in Cash Book: 1

Opening Balance at the beginning of financial period represent how much balance is carried forward from previous financial period.

2

Cash received on sales of goods.

3

Cash received from credit customers (debtors).

4

Loan from banks or others, usually treated as long term liabilities.

5

Introduction of additional capital as bank or cash, to expand business investment.

6

Cash received as income from other sources such as rent receivable.

7

Cash paid on purchase of goods.

8

Cash paid to settle the balance against credit customers (creditors).

9

Cash paid for different expenditure, usually this are treated as operating expenses for the business.

10

Cash paid for acquisition of fixed assets.

11

Cash withdrawn by owners for personal purpose.

12

Payment of loan interest arising from l ong term liabilities.

13

Repayment of loan to bank or other lenders.

14

15

Closing debit balance indicating the balance in hand and is treated as current assets in balance sheet. Closing credit balance indicating overdraft for the business and is treated as current liabilities in balance sheet

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O’LEVEL HANDOUTS

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CALCULATION OF CAPITAL: This is a very important part, every student need a greater knowledge. Capital can be calculated using different equation. For your knowledge all what you need to visualize the balance sheet. For many businesses capital is not properly mentioned as a result using assets, liabilities, net profit, net loss and drawings you can easily obtain how much capital is available at beginning and end of every financial year.

Capital = Fixed Assets + Current Assets  – Current Liabilities 

Capital = Fixed Assets + Working Capital 

Capital = Opening Capital + New Capital + Net Profit/ (-) Net Loss  – Drawings + Loan 

Capital = Business Equity + Loan 

CAPITAL ACCOUNT £

£ Balance b/d

xxx

Drawings

xxx

New Capital

xxx

Net Loss

xxx

Net Profit

xxx

Balance c/d

xxx xxx

xxx Balance b/d

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xxx