ACCOUNTS 14.

Accounts from Incomplete Records

14. ACCOUNTS FROM INCOMPLETE

RECORDS
CONCEPT 1 : INTRODUCTION
 Very often the small sole proprietorship and partnership businesses do not maintain double entry
bookkeeping system. Sometimes they keep record only of the cash transactions and credit transactions.
 But at the end they want to know the performance and financial position. This creates some special
problems to the accountants.
 The term "Single Entry System" is popularly used to describe the problems of accounts from incomplete
records.
 Features :
(a) It is an inaccurate, unscientific and unsystematic method of recording.
(b) There is generally no record of real and personal accounts and a record is kept for cash transactions
and personal accounts.
(c) Cash book mixes up business and personal transactions.
(d) There is no uniformity in maintaining the records.
(e) Profit under this system is only an estimate and therefore true and correct profits cannot be
determined.

CONCEPT 2 : TYPES OF SINGLE ENTRY

Pure single entry Simple single entry Quasi single entry

(a) Pure single entry:

 Only personal accounts are maintained with no information of cash and bank balances, sales and
purchases, etc.
 This method exists only on paper and has no practical application.
(b) Simple single entry:
 In this, only:
(a) Personal accounts, and
(b) Cash book are maintained.
 Although these accounts are kept on the basis of double entry system, postings from cash book are
made only to personal accounts and no other account is to be found in the ledger.
 Cash received from debtors or cash paid to creditors is simply noted on the bills issued or
received.
(c) Quasi single entry:
 In this:
(a) Personal accounts,
(b) Cash book, and
(c) Some subsidiary books are maintained.
 The main subsidiary books are Sales book, Purchases book and Bills book.
 No separate record is maintained for discounts.
 In addition, some scattered information is also available like wages, rent, rates, etc..
 It is generally adopted as a substitute for double entry system.
CA SANKET SHAH Page 180
 ACCOUNTS 14. Accounts from Incomplete Records
CONCEPT 3 : ASCERTAINMENT OF PROFIT BY CAPITAL COMPARISON
 This method is also known as Net Worth method or Statement of Affairs Method.

Closing Capital - Opening Capital = Profit

 If detailed revenue and expenses are not known, it becomes difficult to prepare P&L A/c.
 Instead by collecting information about assets and liabilities, it is easier to prepare balance sheet at two
different points of time.
(1) Methods of Capital Comparison :
 Capital is increased if there is profit, while capital is reduced if there is loss.
 However, if the proprietor/partners made fresh investments, capital is increased; if they make
withdrawal capital is reduced.
 So while determining the profit by capital comparison, the following rules should be followed.
Particulars ` Particulars `
By Bal b/d xxx
To Cash xxx By Cash xxx
To Loss xxx By Profit * xxx
To Bal b/d xxx
Total ` xxx Total ` xxx
 It is clear from the above capital comparison method one should know the opening capital and closing
capital.
 This should be determined by preparing statement of affairs at the two respective points of time.
Capital always equals assets minus liabilities.
 The accountant utilizes the following sources of finding out the assets and liabilities :
(a) Cash book for cash balance
(b) Bank pass book for bank balance
(c) Personal ledger for debtors and creditors
(d) Inventory by actual counting and valuation.
(e) As regards fixed assets, he prepares a list of them.
After deducting reasonable amount of depreciation, the written down or depreciated value would
be included in the Statement of Affairs.
 After obtaining all necessary information about assets and liabilities, of the accountants is to prepare
statement of affairs at two different points of time.
(2) Difference between Statement of Affairs and Balance Sheet :
Basis Statements of affairs Balance Sheet
Reliability It is prepared on the basis of transactions Strictly on the basis of double entry book
partly recorded on the basis of double entry keeping.
book keeping and partly on the basis of single Hence the balance sheet is not only
entry. Most of the assets are recorded on the reliable, but also dependable.
basis of estimates, rather than records.
Capital Capital is merely a balancing figure being Capital is derived from the capital account
excess of assets over capital. in the ledger.
Hence Assets  Liabilities Hence Assets = Liabilities
Omission It is very difficult to locate the assets & As all items are recorded there is no
liabilities, if they are omitted from the books. possibility of omission.

CA SANKET SHAH Page 181

 ACCOUNTS 14. Accounts from Incomplete Records
Basis of No method of valuation is disclosed. It is done on scientific basis, that is original
Valuation of cost in the case of new assets and
Assets depreciated amount on the basis in case of
for used assets.
Objects The object is preparing calculation of capital To ascertain the financial position on a
figures. particular date.

CONCEPT 4 : TECHNIQUES OF OBTAINING COMPLETE ACCOUNTING INFORMATION

1] General Techniques :
 Where the accounts are incomplete, it is advisable to convert them first to the double entry system,
instead of determining the amount of profit/loss by preparing the statement of affairs.
 As books of accounts of different firms being incomplete in varying degrees, not possible to suggest
formula for preparing final accounts.
Steps Description
I To start the ledger accounts with the opening balances of assets, liabilities and the capital.
II Afterwards, each book of original entry should be separately dealt with, to complete the double
entry by posting into the ledger.
III If there are Discount Columns in the Cash Book, the totals of discounts paid and received
should be posted to Discounts Allowed and Discounts Received Accounts respectively.
IV Other subsidiary books, i.e. Purchases Day Book, Sales Day Book, Return Book and Bills
Receivable and Payable, etc. should be to tallied up and their totals posted into the ledger.
V In the end it will be possible to extract trial balance.
 The manner in which Problems may be dealt with is described below :
[a] In the Cash Book, receipts which have no connection with the business but which belong to the
proprietor, e.g., interest collected on his private investment, legacies received by him, amount
contributed by the proprietor, etc. All those amounts should be credited to his capital account. Entries
in respect of payments for proprietor's purchases should be debited to his capital account.
[b] Amounts belonging to the business after collection may directly utilised for acquiring business assets
or for meeting certain expenses instead of being deposited into the Cash Book.
Asset A/c / Expenses A/c Dr.
To Capital A/c/ Cash A/c
On the other hand, the proprietor may have met some of the business expenses from his private
resources.
[c] If cash is short, because the proprietor had withdrawn amount without any entry proprietor's capital
account should be debited.
[d] Where the benefit of an item of an expense is received both by the proprietor and business, then it
should be allocated between them on some equitable basis. E.g. rent of premises when the proprietor
lives in the same premises, should be allocated on the basis of the area occupied.
[e] The schedules of sundry debtors and creditors, extracted from respective ledgers maintained for the
purpose should be examined.
Since Sales Account, Purchase Account and other nominal accounts having already been written up on
the basis of Day Books, it is not necessary to adjust them further.
It is expected that the opening balances in these accounts would have been adjusted by recovery or
payment and the receipt from debtors and the payment to creditors correctly posted to the accounts
instead of having been recorded as Sales or Purchases.
2] Derivation of Information from Cash Book :
 Analysis of cash as well as bank receipts & payments, should be extensive but under significant heads.

CA SANKET SHAH Page 182

 ACCOUNTS 14. Accounts from Incomplete Records
Cash and Bank Summary Account for the year ended
Particulars Cash ` Bank ` Particulars Cash` Bank `
To Balance in hand (opening) By Sundry payments (Expense)
To Sales By Purchases
To Collection from debtors By Sundry creditors
By Drawings
By Petty expenses
By Rent
By Electricity and water
By Repairs
By Wages
By Balance in Hand
Total ` Total `
 The important point about incomplete records is that much of the information may not be readily
available and that the relevant information has to be ascertained.
 It is quite likely that some of the missing information will then be available.
 Consider the following about a firm relating to 2014.
Particulars `
Cash Balance on 1stJan., 2014 250
Bank overdraft on 1stJan., 2014 5,400
Cash purchases 3,000
Collection from Sundry debtors 45,600
Sale of old furniture 750
Purchase of Machinery 12,000
Payment of Sundry creditors 26,370
Expenses 8,450
Fresh Capital brought in 5,000
Drawings 3,230
Cash Balance on 31st Dec, 2014 310
Bank balance on 31st Dec, 2014 1,180
 Now prepare the cash and Bank Summary.
Cash and Bank Summary
Particulars ` Particulars `
Cash Balance as on 1-1-2014 250 Bank overdraft 5,400
Collection from Sundry debtors 45,600 Cash purchases 3,000
Sale of old furniture 750 Purchase of Machinery 12,000
Fresh Capital brought in 5,000 Payment to Sundry creditors 26,370
Balancing figure 8,340 Expenses 8,450
Drawings 3,230
Cash balance on 31-12-2014 310
Bank balance on 31-12-2014 1,180
Total ` 59,940 Total` 59,940

CA SANKET SHAH Page 183

 ACCOUNTS 14. Accounts from Incomplete Records
3] Analysis of Sales Ledger and Purchase Ledger :
Sales Ledger
 It would disclose information about :
[a] Opening balance of the debtors, [b]the goods sold to them on credit during the year,
[c] Bills receivable dishonoured, if any; [d]Cash received from them in the accounting period,
[e] Discount,
[f] Rebate or any other concession allowed to them,
[g] Receipts of bills receivable,
[h] Returns inwards,
[i] Bad debts written off and
[j] Transfers.
Analysis of Sales Ledger of the year
Opening Dis-
Sales Bills Total Cash Bills Sales Bad Total Closing
Customer counts
Dishonored Debits Recd. Reed. Returns Debts Credit Balance
Bal. Allowed
 It would also be possible to prepare Total Debtors
Total Debtors Account
Liabilities ` Assets `
Opening balance Cash/Bank
Sales Discount
Bills dishonored Bills receivable
Interest Bad debts
Closing balance
Total ` Total `
Purchases Ledger is similar to Sales Ledger
Nominal Accounts
Expenses A/c Income A/c
Particulars ` Particulars ` Particulars ` Particulars `
To Prepaid By Payable To Receivable By R.I. Advance
To Cash By I & E To I & E By Cash
To Payable By Prepaid To R.I. Advance By Receivable
Total ` Total ` Total ` Total `
Distinction between Business Expenses and Drawings :
 It has been already stated that often the distinction is not made between business expenses & drawings.
 While completing accounts from incomplete records, it is necessary to scan the business transactions
carefully to identify the existence of drawings.
 The main items of drawings are :
[a] rent of premises commonly used for residential as well as business purposes ;
[b] common electricity and telephone bills ;
[c] life insurance premiums of proprietor/partners paid from business cash ;
[d] household expenses met from business cash ;
[e] private loan paid to friends and relatives out of business cash ;
[f] personal gifts made to any friends and relatives out of business cash ;
[g] goods or services taken from the business for personal consumption ;
[h] cash withdrawals to meet family expenses.
 So it is necessary to scan the summary of cash transactions, business resources and their utilisation to
assess the nature of drawings and its amount.

CA SANKET SHAH Page 184

 ACCOUNTS 14. Accounts from Incomplete Records
Fresh Investment by proprietors / partners
 Like drawings, often fresh investments made by proprietors' partners are not readily identifiable.
 It becomes necessary to scan the business transactions carefully.
 Apart from direct cash investment, fresh investments may take the following shape:
[a] Money collected and put in the business on maturity of Life Insurance Policy of the proprietors;
[b] Interest and dividend of personal investment of the proprietors collected and put in the business;
[c] Income from non-business property collected and put in the business.
 Unless these items are properly identified and segregated, business income will be inflated and proper
statement of affairs cannot be prepared.

CONCEPT 5 : BILL OF EXCHANGE ENTRIES

Sr. no. In the Books of X In the Books of Y
1] Y's A/c (Debtor) Dr Purchases A/c Dr
To Sales A/c To X (Creditor) A/c
2] Bills Receivable A/c Dr X A/c Dr
To Y's A/c To Bills Payable (Liability) A/c
3] Situation I : Retain
No Entry No Entry
Situation II :Discount
Bank A/c Dr No Entry
Discount A/c Dr
To Bills Receivable A/c
Situation III : Endorsed
Endorsee/Creditors A/c Dr No Entry
To Bills Receivable A/C
4] Due Date : Honour
Situation I : Retain
Bank A/c Dr Bills Payable A/c Dr
To Bills Receivable A/c To Bank A/c
Situation II :Discount
No Entry Bills Payable A/c Dr
To Bank A/c
Situation III : Endorsed
No Entry Bills Payable A/c Dr
To Bank A/c
5] Due Date : Dishonour
Situation I : Retain
Y's A/c Dr Bills Payable A/c Dr
To Bills Receivable A/C To X A/c
Situation II :Discount
Y's A/c Dr Bills Payable A/c Dr
To Bank A/c To X A/c
Situation III : Endorsed
Y's A/c Dr Bills Payable A/c Dr
To Creditors A/c To X A/c


CA SANKET SHAH Page 185