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Chapter 2: Incomplete Records Accounting, There area differences between -…
Chapter 2: Incomplete Records Accounting
Opening capital
If the bank balance Is over drafted it becomes a liability
In the situation of incomplete records, the opening capital maybe known, if not we will use the accounting equation, assets liabilities capital
This is needed for the statement of financial position :
Cash book summary
If bank balance is over drawn credit it
Enables us to find out the cash and bank balance at the year end
In practice the bank statements could be used to produce a summary of bank receipts
At the end of the summary, the credit balance brought down is an overdraft
Tools of Accounting
Accounting tools that maybe required
Construction of Cash account or bank account
The use of control account
Purchase ledger control
VAT control account
Sales ledger control
The use of an opening trial balance, or statement of assets and liabilities
Prep of financial statements
Accounting equation
Using the tools of accounting to construct the accounts that are required.
Purchases and Sales
Purchases for the years=payments - trade payables(at beginning of year) + trade payables (end of year)
Sales for the year=receipts - trade receivables (beginning of year) + trade receivables (end of year)
Remember to include, returns and discount received or allowed, irrecoverable debts (sales) contra transactions (set off between sales ledger and purchases ledger), goods taken for owners use
Purchases and sales summary
For the calculations or control account, 4 pieces Information is required
Closing balance
Opening balance
Providing that any three are known you can calculate the other
Purchases or sales of the year
Bank and cash payment, receipts for the year
Information Available to the Accoutant
Information which may not be available
Profit or loss for the year
Capital at the beginning of the year
Purchases and sales for the year
cash book summary for the year
Drawing for the year
A business will have a cash book which is normally kept as a one entry account, but if it hasn't been kept you usually reconstruct it by using the bank statements but its a time consuming job
Places accountant can get information from
Non-current assets- brought an sold during the year
Assets and liabilities- non-current and current assets, long term and current liabilities, at the beginning and end of year
Cash book- this is a basic record for any single entry
Banking details- statements, paying in books, cheque stubs and bank transfer are included in this
Invoices- Invoices which area both sent (sales) and received (purchases)
Expenses- from during the year
Lists of account owing suppliers (payables), and trade receivables from customers, from the beginning and end of year
Statement of profit or loss
expenses for the year
Bank and cash payment - accruals (beginning of year + prepayments +accruals at end of year - prepayments at the end of year
Groos profit mark-up
Two main percentage or fraction
Mark-uo, profit percentage or fraction added to buying or cost price
Margin profit percentage or fraction based on the selling price
It is often neccesary to use according ratios, percentage or fractions in prep for financial statements
Business establish its selling price by reference to either the mark-up or margin the difference between two are
The use of gross profit mark-up and margin
Gross profir margin ( gross sales profit )
There area differences between
WHAT ARE INCOMPLETED RECORD
incompletes records is the term used where some aspect of the accounting system is missing
The timing difference so when a good has been ordered by not received payments have been sent but havent been recorded ye
when information has been lost due a disaster flood or fire or the loss of information ledgers or computurised data
When there is inadequate or missing accounting records which can concern purchases sales payables and receivables
ledgers ,accounts, non current assets register ,the physical on - current assets on the business
Inventory records, inventory total and the physical inventory held by the businesses
Businesses cash book and the bank statement given by the bank
Purchases ledger account and the statement received from suppliers