incomplete records. for many small businesses, they do not maintain a full set of double-entry...
Post on 23-Dec-2015
216 Views
Preview:
TRANSCRIPT
Incomplete Records
Incomplete Records
For many small businesses, they do not maintain a full set of double-entry books.All they keep are just invoices and bank statement.The preparation of the profit and loss account and balance sheet in circumstances where the bookkeeping records are inadequate or incomplete.
Reason for incomplete record
Lack of accounting experience to maintain records.
Cash misappropriated by the assistant.
Goods stolen or lost by fire.
Trading and profit and loss account
T. LeeTrading and Profit and Loss Account
for the year ended$ $
Sales (1) x
Less: COGS
Opening stock x
Add: Purchase(2) x
Less: closing stock x x
Gross Profit (3) x
Add: Discount received (4) x
x
Less: Expenses (5)
Rent x
Light x x
x
Sales = Cash Sales + Credit Sale
NEXT
Working 1:
Cash SalesCash Sales may be found in cash book
NEXT
Cash book may be prepared
to update the cash book and reconcile the cash book balance with the bank statement balance.
to identify any missing figures e.g.: cash sales, sundry expenses, cash drawings and cash misappropriated.
Credit Sales
Credit Sales to be found in Total Debtors
Account
to use accounting ratio
BACK
Purchases = Cash Purchases + Credit Purchases
Working 2:
NEXT
Cash/Credit purchases
Cash Purchases may be found in cash book.
Credit Purchases Total Creditors Account
to use accounting ratio
BACK
Gross Profit• To use ratios such as mark-up and
margin to find gross profit figures• Then use gross profit figures to find
missing figures. (e.g.: purchases, cost of good sold, closing stock, etc.)
NEXT
Working 3:
Introduction of accounting ratios1. Mark-up
2. Margin
NEXT
Mark-up:Refer to profit which expressed as a
fraction or percentage of the cost price.
Margin;Refer to profit which expressed as a
fraction or percentage of the selling price.
NEXT
Mark-up = Profit (P)
Cost of Goods Sold (C)
Margin = Profit (P)
Sales (S)
NEXT
X 100%
X 100%
Relationship of 2 ratios
Sales = Cost + Profit
S = C + PMark-up Margin
Margin Mark-up
NEXT
C? P
SP
=> C
P
SP
C+PP
SP
? CP
SP=>
CP
C+PP
Example 1
Mark-up is 20%, what is margin?
Mark-up: 20 Margin: 20
NEXT
100 100+20
Example 2
Margin is 25%, what is mark-up?
Margin: 25 Mark-up: 25
BACK
100 75
Income earned
= Cash received + Prepaid last year – Accrued last year –Prepaid this year + Accrued this year
BACK
Working 4:
Expenses incurred
= Cash paid + Prepaid last year – Accrued last year – Prepaid this year + Accrued this year
BACK
Working 5:
Balance Sheets
Balance Sheet
Net Profit = Closing capital – Opening capital +
Drawings – Capital introducedOpening capital Balance = Opening assets – Opening liabilities
Sometimes, statement of Affairs need to be prepared in order to find out the opening capital balance.
ExampleBalance Sheet at 31 June 19-1 (extracts)
Stock $2000Debtors $2000Creditors $ 1000
During this period: $Receipts from debtors 6000Cash Sales 1000Payment to creditors 4000Payment to Rent 500At 30 June 19-2: Debtors $1000
Creditors $1000 Mark-up 20% Accrued at 30 June 19-2 $200
Prepare final accounts for the year ended 30 June 19-2.
Sales (Working 1) 6000
Less: COGS
Opening stock 2000Add: Purchase (Working 2) 4000
6000Less: closing stock 1000 5000
Gross profit (Working 3) 1000
Less: ExpensesRent (500 + 200) 700
Net Profit 300
Trading and profit and loss account for the year ended 30 June 19-2 $ $
Total Debtors
Working 1
Sales = Cash Sales + Credit Sales
= 1000 + 5000
= $6000BACK
Bal b/d 1000
Sales (bal. fig.) 50007000
Cash 6000
Bal c/d 10007000
Total Creditors
Working 2
Sales = Cash Purchases + Credit Purchases
= 0 + 4000
= $4000BACK
Cash 4000
Bal c/d 1000
5000
Bal b/d 1000
Purchase (bal.fig.) 4000
5000
Mark-up Margin
20 20
Sales = Cost + Profit
6000 = x + 6000 * 20/120
6000 = x + 1000
x = 5000
Working 3
BACK
100 100+20
Further Example
Stock loss
Stock loss (e.g. $1000) without insurance claim Dr. Profit and loss $1000 Cr. Trading $1000
Stock loss (e.g. $1000) with insurance claim (e.g. $800) Dr. Bank $800 Dr Profit and loss $200 Cr Trading $1000
(net loss)
Balance Sheet at 31 June 19-1 (extracts)Stock $23750Debtors $16000Creditors $11520
During this period: $Receipts from debtors 61000Cash Sales 17220Payment to creditors 59630Payment to expenses 4000At 30 June 19-2: Debtors $18780
Creditors $14210The firm achieves a mark-up of 25% on all cost.The warehouse has burned down and all the stock
was destroyed.The insurance company gives $15000 for
compensation for stock loss.
Trading and Profit for the year ended 30 June 19-2 $ $
Sales (17220+61000+18780-16000) 81000
Less: COGS
Opening stock 23750
Add: Purchase (59630+14210-11520) 62320
86070
Less: Fire loss (21270) 64800 [2]
Gross profit (81000 * 25/125) 16200 [1]
Less: Expenses
Expenses 4000
Fire loss (21270-15000) 6270 10270
Net Profit 5930
[3]
top related