Accounts from Incomplete Records

>> July 22, 2011


"Accounts from Incomplete records" is the good topic of CA-IPCC's accounting subject. Practical questions are important for CA-IPCC because in past papers, practical questions have been asked by examiners. But without theoretical understanding, you can not solve practical problem, so, we are explaining its theoretical part here.

First of we define accounts from incomplete records:

Accounts from incomplete records is the system in which we convert single entry system into double entry system. As per accounting rules, single entry system can only show incomplete records because accountant (who follows this single entry system) do not records the expenses and revenue. He just record total cash and credit. It means, it is very difficult to know the profit or loss of such business because we can not make profit and loss account in single entry system. For converting incomplete records into complete records with double entry system, we need current year's profit or loss.

  After knowing profit or loss, we will pass opening entries in next year and record all transactions with double entry system.

So, For calculating profit or loss from incomplete accounts we will follow following steps

Steps of Ascertainment of Profit by Capital Comparison

1st Step : To Know Opening and Closing Capital

If we compare opening and closing capital, we can know profit. Suppose, Ram started his business with He did not maintain his records but at the end, he was It means he earned profit in one year.

Simple formula of profit = Closing Capital - Opening Capital 

But, if we do not information of his opening and closing capital, we can get this information by making statement of Affairs. This statement of affairs is just like opening and closing balance sheet. We will write fixed and current assets in its asset side and fixed and current liabilities in its liabilities side. Difference will be the capital figure.

How to find the assets and liabilities figure. From his cash and bank pass book, we can know his cash and bank balance. We also get the figure of his taken loan and purchase amount of fixed assets from his personal diary. Little deep investigation, we can know all the figures which we need for making opening and closing statement of Affairs.




















2nd Step : To Know Profit or Loss 

Now, we have both opening capital and closing capital figures. We compare each other.

One more thing you remember that you also adjust your fresh capital and drawing. Drawing will add in closing capital and fresh capital will deduct from closing capital.

Why?

Because when we withdraw money for personal use. Our capital is decreased. This decrease is not of loss of business. So, we can know exact business loss by adding it. When we bring fresh capital in the business, our capital is increased. This increase is not of net profit of business. So, we deduct it to know exact net profit of business. Ok.

 Closing Capital  XXXX
Add Drawing XXXX

Balance
------------
XXXX
Less Fresh Capital XXXX
Less Opening Capital XXXX

Net Profit or Net Loss of Business 

XXXX

Related : Profit or Loss  from Incomplete Records Practical Question





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