Incomplete records

Incomplete records – Examples

Example 1
Tony Cook is a self employed plumber. His financial details for the years ended 1999 and 2000 showed:

	1999	2000
Assets:
Motor Vehicle	6,500	5,500
Equipment	2,500	2,000
Stock	750	1,650
Cash at Bank	900	1,300
	10,650	10,450
Less Creditors	750	650
	£9,900	£9,800

Tony’s drawings for the year were £10,650. He had sold some shares for £1,050, the proceeds of which he had paid into his business bank account.

Thus, profit for the year can be calculated as:

	£
Capital at start of the period	9,900
Add capital introduced (sale of shares)	1,050
	10,950
Drawings for period	(10,650)
	(300)
Capital at the end of the period	9,800
Net profit	9,500
	£
so: Capital at start of year	9,900
Add capital introduced	1,050
	10,950
Add profit for year	9,500
	20,450
Less drawings	10,650
Capital at end of year	9,800

The balance sheet figures should be supported by reconciled bank statements, unpaid sales invoices totalling the sum included as debtors, unpaid purchase invoices totalling creditors, and receipts for payments for fixed assets along with depreciation calculations.

Example 2
A similar approach can be used to determine sales and purchases totals, when given a cash book showing receipts and payments, together with opening and closing debtors and creditors. The following illustrates the use of such techniques.

John Risdon is a self employed motor engineer. He maintains a cash book to record his business receipts and payments. The following is a summary of the cash book for year ended 31 December 2000:

Cash Book
£ Balance b/d 1,500 Cash received from work done 39,300 Sale of own car 4,000 £44,800	£ Drawings 14,100 Materials 17,300 Van running expenses 4,100 Wages, trainee 5,100 Admin 250 Tools and consumables 600 General expenses 350 Balance c/d 3,000 £44,800

Assets and liabilities at 31 December 1999 and 2000 were:

	1999 £	2000 £
Motor van	7,500	5,000
Stock materials	1,350	1,450
Debtors for work done	3,400	3,750
Creditors for supplies	1,250	1,450
Van insurance pre-paid	160	170

The motor vehicle had been purchased second hand on 1 January 1999 for £10,000 and is subject to depreciation at 25% per annum, straight line, (that is, it is being written off over four years, its expected useful economic life).

This information can be used to produce statements for the year ended 31 December 2000.
Opening capital can be arrived at by using the “accounting equation”.

£ Assets: Motor van 7,500 Stock 1,350 Debtors 3,400 Cash at bank 1,500 Pre-payments 160 13,910 Less creditors 1,250 Capital £12,660	(see cash book summary)
Work done during the year:
	£
Cash received during the year	39,300
Less owed at start of the year	3,400
	35,900
Add owed at end of the year	3,750
	£39,650

This can also be shown in the form of a control account:

Sales Ledger Control
2000 £ Balance b/d 3,400 2000 Work done 39,650 43,050 2001 Balance b/d 3,750	2000 £ Receipts from debtors (cash book) 39,300 Balance c/d 3,750 43,050

Likewise the purchases and motor van running costs (where, because opening and closing creditors and debtors, the insurance pre-payment; and the actual amounts paid are all known, the charge for the year can be calculated).

Purchase Ledger Control
£ 2000 Payments to creditors for materials 17,300 Balance c/d 1,450 18,750	£ 2000 Balance b/d 1,250 2000 Purchases 17,500 18,750 2001 Balance b/d 1,450
Motor Van Running Costs
£ 2000 Balance b/d (pre-payment) 160 2000 Payments 4,100 4,260 2001 Balance b/d 170	£ 2000 Charge for year 4,090 Balance c/d 170 4,260

Notes for Preparation of the Final Accounts
NB: The difference between the opening and closing motor van valuation (£7,500 – £5,000 = £2,500, is the depreciation charge for the year, ie: (£10,000 x 25% per annum).

The proceeds from the sale of the personal motor vehicle, which were paid into the business bank account, represent capital introduced. Other costs are shown in the summary cash book extract.

We can now draft the final accounts for the year ended 31 December 2000.

Trading and Profit and Loss Account of J Risdon for Year Ended 31 December 2000

		£
Work done		39,650
Opening stock of materials	1,350
Add purchases	17,500
	18,850
Less closing stock of materials	1,450
Cost of materials used		17,400
Gross Profit		22,250
Wages	5,100
Motor vehicle running costs	4,090
Administration	250
Tools and consumables	600
General expenses	350
Depreciation motor van	2,500
		12,890
Net profit for year		£9,360

Balance Sheet as at 31 December 2000

	Cost £	Depreciation £	Net Book £
Fixed assets:
Value
Motor van	10,000	5,000	5,000
Current assets:
Stock		1,450
Debtors		3,750
Cash at bank		3,000
Pre-payment		170
		8,370
Less:
Current liabilities:
Creditors		1,450
Net current assets			6,920
Total assets less current liabilities			11,920
Financed by:
Opening capital			12,660
Add capital introduced			4,000
			16,660
Add profit for year			9,360
			26,020
Less drawings			14,100
			11,920