Incomplete Records by Cathy Sibley (Part 1 of 2)

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Joella McLaughlin
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1 Incomplete Records by Cathy Sibley (Part 1 of 2) Incomplete records are, as they suggest, accounting records that are incomplete. The lack of information could be due to loss of information, for example as a result of a fire or flood where the records are kept or having simply just not been kept by the business proprietor perhaps through a lack of book keeping knowledge. In the past, questions on incomplete records were a headache for students as they were like a giant jigsaw puzzle where some of the pieces were missing! Today life is much simpler due to the nature of your computer based exam questions. Previously we looked at control accounts and their reconciliation process [insert link from June Velocity]. The knowledge you gained there will help you with incomplete records. Our starting point however will be the bank and cash accounts. The summary cash and bank accounts are often used to help compile sales and purchase information as we ll see later. The cash account will often represent a cash register, till or even petty cash tin. Cash that comes into the business will be entered here and from it cash expenses paid or perhaps cash purchases made. From time to time the surplus cash will be banked for security and use within the business. The frequency of this will depend on the business and the volume of cash. Cash Account Cash expenses paid Cash received from customers Cash purchases made Cash banked (see Bank account) Hopefully there will be some receipts available to show what cash was actually spent on.

Bank Account Expenses paid Cash banked (see Cash account) Bank interest paid Cash received from customers Direct debits Bank interest received Standing orders Cash paid to suppliers (Overdraft)

2 Bank Account Expenses paid Cash banked (see Cash account) Bank interest paid Cash received from customers Direct debits Bank interest received Standing orders Cash paid to suppliers (Overdraft) (Overdraft) This information will all be available from the business bank statement. Cash received from customers could be cheques banked or direct transfers from customer s bank accounts. The Proprietor should have a cheque book in which the payee of each cheque is recorded. If this is not available the full information can be obtained from the bank but this can take time and be expensive. Now consider the sales ledger control account that we looked at in our previous article. Sales Ledger Control Account Cash Received (Cash book) edit sales (Sales day book) Discount allowed (Cash book) Dishonoured cheque (Cash book) Returns inwards (Returns inwards book) Irrecoverable debt written off Contra with purchase ledger control

3 This proforma relies on you having a complete book keeping system so we could simplify it as follows: from last period SALES (balancing figure) Cash received from customers (Bank & Cash accounts) at the end of this period The amount owed by customers if not known already can be established through contacting customers for confirmation. If you start with what they owed you at the end of the last accounting period, consider what has been received in the current period from the cash and bank accounts and compare that to the amount owed at the end of the period, the balancing figure will be TOTAL SALES. Often the distinction between cash and credit sales is not made within incomplete records. Use the same approach for the purchase ledger control account. For a complete book keeping system it would be as before. Purchase Ledger Control Account Cash paid (Cash book) Returns outwards (Returns outwards book) Discount Received (Cash book) Contra with sales ledger control edit Purchases (Purchase day book)

4 The simplified version would be: Payables Account Cash paid to suppliers from last period PURCHASES (balancing figure) at the end of this period If not already known, the amount owed to suppliers can be established through contacting suppliers for confirmation. If you start with what you owed at the end of the last accounting period, consider what has been paid in the current period from the bank account and compare that to the amount you owe at the end of the period,the balancing figure will be PURCHASES. Let s consider an example. THE FOLLOWING INFORMATION IS RELEVANT TO THE CALCULATION OF THE SALES FIGURE FOR SPENCER, A SOLE TRADER WHO DOES NOT KEEP FULL ACCOUNTING RECORDS: $ Opening receivables 29,100 Cash received from credit customers and paid into the 381,600 bank Expenses paid out of cash received from 6,800 credit customers before banking Irrecoverable debts written off 7,200 Discounts allowed to credit customers 9,400 Cash sales 112,900 Closing receivables 38,600 The figure which should appear in Spencer s trading account for sales is: Start by drafting a receivables account. Now fill in the figures that you have starting with opening and closing balances.

5 29,100 38,600 38,600 Now think about your sales ledger control account and enter the transactions. 29,100 Cash received (381,600+6,800)* 388,400 Irrecoverable debts 7,200 CREDIT SALES 414,500 Discounts allowed 9,400 38,600 38, , ,600 * the expenses paid out before the cash was banked reduced the amount banked overall. That means that the amount received from customers will be higher by $6,800. TOTAL SALES = edit sales $414,500(above) + Cash sales $112,900(from the question) = $527,400 An alternative answer would include ALL cash received from customers which means including the cash sales as cash received. As you can see it gives the same overall answer. 29,100 Cash received 501,300 (381,600+6, ,900) Irrecoverable debts 7,200 TOTAL sales 527,400 Discounts allowed 9,400 38,600 38, , ,500 NOTICE THAT THE ONLY DIFFERENCE IN THE ACCOUNT IN THE INCLUSION OF CASH SALES IN CASH RECEIVED AND THE BALANCING FIGURE IS LABELLED TOTAL SALES IE CREDIT AND CASH COMBINED. Now we have the four basic accounts in place like the four corner pieces of a jigsaw we can build on that information using cost structures, the trading account and the accounting equation.

Before reading these additional examples, make sure you have read Cathy Sibley s article on Control Accounts, published in June 2012 Velocity.

C02 Financial Accounting Fundamentals Control Accounts Before reading these additional examples, make sure you have read Cathy Sibley s article on Control Accounts, published in June 2012 Velocity. Let