Lesson Notes By Weeks and Term - Senior Secondary School 2

SINGLE ENTRY AND INCOMPLETE RECORDS

SUBJECT: FINANCIAL ACCOUNTING

CLASS:  SS 2

DATE:

TERM: 3rd TERM

 

WEEK ONE - THREE

TOPIC: SINGLE ENTRY AND INCOMPLETE RECORDS

CONTENT:     (i) Introduction (ii) Steps Involved in preparing a P&L A/C and Balance Sheet from Incomplete Records (iii) Example 

  1. INTRODUCTION: 

    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.

 

ii     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  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

 

Example:

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 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 prepar Azim’s profit and loss accounts for the year ended 31 December, 2003 and his Balance Sheet at that date. 

Solution:

Step 1: Opening statement of Affairs 

                                N            N 

Assets                                        

Shop fittings                                    1600   

Stock                                            1960

Debtors                                       240

Rent prepaid                                         80

Bank                                            1500

Cash in hand                                     50

                                            5,430

Less Liabilities 

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

                              Postage and 

                              Stationery                     80

                              Shop fittings              480

                              Sundry Exps.                    115

                              *Drawings   

                              (2700+250)            2,950

                                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

                                      3220              3220

 

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

1/1/03            P&L ac        31/12/03        225        P&L A/C          415

 Prepaid b/f 80    (payable for)                545                545

Cash         600    the year         630

          680                  680   

                                                  N

Steps 5: Calculate depreciation of shop fitting: Shop fittings at valuation 1/1/03     1600

        Add fittings purchased in the year                          480

                                                2080

Shop fittings at valuation 31/12/03                            1800

Therefore Depreciation for the year                                 = 280

 

Step 6:                 AZIM

Trading and profit and loss accounts for the year 

Ended 31 December 2003

                            N            N

Sales                                         8655

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

Less:     EXPENSES

Rent                             630

Electricity                         415

Postage and stationery                   80

Sundry expenses                    115

Depreciation – shop fitting                 280            1520

            NET PROFIT                     3,895





Balance sheet at 31st December, 2008

                $            $            $

Fixed assets: shop fitting                                1800

CURRENT ASSETS

     Stock                             1520

    Trade debtors                       380

    Rent prepaid                               50

    Bank                            2640

Cash                                 50

                            4640

 

LESS CURRENT LIABILITIES 

    Trade creditors    390   

Electricity owing     229              615            4025

                                    5825

 

    Capital  at 1st Jan.                                 4880

Profit for the year                                 3895

                                        8775

Less drawings                                2925

                                        5825 

EVALUATION QUESTIONS

  1. What is the purpose of the opening statement of affairs in complete records?
  2. What is the debtors control account prepared to reveal?

 

    READING ASSIGNMENT 

  1. Essential Financial Accounting by O.A. Longe  Page 371 - 384 
  2. Accounting by Harold Randall  Page 279 – 290

 

WEEKEND ASSIGNMENT 

  1. Debtors control account reveals (a) debtors (b) creditors (c) cash received (d)sales 
  2. In incomplete records creditors control account is prepared to reveal (a) sundry creditors (b) purchases (c) cash paid to creditors (d) discount received 
  3. In adjustment accounts prepaid rent A/C should have _______ balance (a) credit (b) Debit (c) both debit and credit  (d) either debit or credits
  4. In adjusting for final account, accrued wages should have ______ balance (a) debit (b) credit (c) debit and credit (d) debit or credit 
  5. Calculation of provisions for doubtful debts, depreciation, etc is done in step ____ in other to prepare P&L a/c and balance sheet from incomplete records  (a) 1 (b) 2 (c) 5 (d) 6

Theory 

  1. List and explain the six steps necessary to prepare a P&L a/c and balance sheet from incomplete records.
  2. Prepare debtors and creditors control accounts formats and highlight what each of them reveals.

 

GENERAL EVALUATION QUESTIONS

  1. State three characteristics of  single entry accounting system
  2. List four disadvantages of single entry accounting system 
  3. List five steps of converting single entry accounting system to double entry system
  4. Explain five differences between a trial balance and a balance sheet
  5. State eight items that will cause a disagreement between the Cash Book balance and the Bank Statement balance


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