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In today’s class, we will be talking about single entry and incomplete records. Enjoy the class!
Single Entry and Incomplete Records
Most businesses keep records of receipts and payments. The records may consist of bank paying – in – book counterfoils, cheque book counterfoils and bank statements in addition to supplies invoices and copies of sales invoices. From these records, it may be possible to prepare a P&L A/C and Balance Sheet.
STEPS INVOLVED IN PREPARING A P&L A/C AND BALANCE SHEET FROM INCOMPLETE RECORDS
The necessary steps are as follows:-
Step 1: Preparing an opening statement of affairs (so as to obtain opening capital)
Step 2: Prepare a receipt and payments A/C
Step 3: Prepare control A/CS for debtors and creditors, if necessary to calculate sales and purchases. It is the sales and purchase figure that will be required to make the account balance.
Step 4: Adjust the receipts and payments accounts prepayments and accruals at the beginning and end of the period.
Step 5: Calculate provisions for doubtful debts, depreciation and any other matters not mentioned above.
Step 6: Prepare the P&L A/C and Balance Sheet from the information now available
The only record that Azim has kept for his business are bank pay-in-book, counterfoils, cheque book counterfoils and records of debtors and creditors. With these, it is possible to summarize his transactions with the bank in the year ended 31/12/03 as follows taking paid into the bank: N8000
Cheques drawn: Payment to suppliers N2430, rent N600, electricity N320, postage and stationeries N80, purchase of shop fittings N480, cheques drawn for personal expenses N2700.
Azim banked all his taking after paying the following in cash:-
Creditor for supplies N400 and sundry expenses N115.
Azim estimated his assets and liabilities as at 1st January 2003 to be: shop fittings N1600. Stock N1960, debtors N240 rent prepaid N80. Bank balance N1500, cash in hand N 50, creditors for goods N420; electricity owing N130.
At 31st December 2003, Azim listed his assets and liabilities as follows. Shop fittings N1800; stock N1520; debtors N380 rent repaired N50; bank balance N2640; cash in hand N 50; creditors for goods N390; electricity owing N225.
Required prepare Azim’s profit and loss account for the year ended 31 December 2003 and his Balance Sheet at that date.
Step 1: Opening statement of Affairs
Shop fittings 1600
Rent prepaid 80
Cash in hand 50
Creditors for goods 420
Electricity owing 130 550
CAPITAL AT 1ST JAN. 2003 4,880
Step 2: Receipts and payments Account. This includes only those amounts actually received and spent. It is a cash book summary with columns for cash and bank.
Cash Bank Cash Bank
N N N N
1/1/03 Balance b/f 50 1500 Trade
Takings Creditors 400 2430
(8000+460+115) 8515 Rent 600
Cash 8000 Electricity 320
Shop fittings 480
Sundry Exps. 115
Bank C 8,000
Balance c/d 50 2640
8565 9500 8565 9,500
*N250 is money not accounted for and is treated as Azim’s drawing.
Step 3: Debtors and creditors controls accounts
Debtors Control A/C Creditors Control A/C
N N N N
1/1/03 Bal b/f 240 31/12/03 Cash 8515
Bal b/f N380 31/12 Bank1/1/03 Bal b/f 420
Sales (2) 8655 and Cash 2830 Purchase (3) 2800
8895 8895 Bal b/f 390
Steps 4: Adjustment for Prepayment and Accounts
Rent A/C N Electricity A/C
N N N
Prepaid Cash 320 1/1/03
At 31/12/03 50 Owing Accrued b/f 130
1/1/03P&L ac 31/12/03 225 P&L A/C 415
Prepaid b/f 80 (payable for 545 545
Cash 600 the year 630
Steps 5: Calculate depreciation of shopfitting: Shop fittings at valuation 1/1/03 1600
Add fittings purchased in the year 480
Shop fittings at valuation 31/12/03 1800
Therefore Depreciation for the year = 280
Step 6: AZIM
Trading and profit and loss account for the year
Ended 31 December 2003
Less cost of sales
Stock at 1st Jan 1960
Add Purchases 2800
Less closing stock 4700
Less stock at 31/12 1520 3240
Gross Profit 5415
Postage and stationery 80
Sundry expenses 115
Depreciation – shop fitting 280 1520
NET PROFIT 3,895
The balance sheet as at 31st December 2008
$ $ $
Fixed assets: shopfitting 1800
Trade debtors 380
Rent prepaid 50
LESS CURRENT LIABILITIES
Trade creditors 390
Electricity owing 229 615 4025
Capital at 1st Jan. 4880
Profit for the year 3895
Less drawings 2925
- What is the purpose of the opening statement of affairs incomplete records?
- What is the debtors’ control account prepared to reveal?
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