Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 2^nd Term

Week: 8

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Incomplete records II

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Prepare statement of affairs to determine capital and statement of profit

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

NOTE

ASCERTAINMENT OF PROFIT AND LOSS
The accounting records that are not maintained as per the double entry system but as per single entry are called Incomplete Records. Where the proprietor maintains incomplete records, he only prepares cash account, debtors account and creditors account properly. He maintains all other accounts in a haphazard manner or not maintains them at all. Thus, in this case, the ascertainment of profit and loss becomes too difficult.

Every business firm needs to prepare the financial statements in order to ascertain the results of its financial operations. It needs to know whether the business is yielding profits or not and also it’s financial position at the end of the year. But, as the records of the entity are incomplete, for the ascertainment of Profit and Loss needs to prepare the following:

1. Statement of Affairs at the beginning and at the end of the year using the Statement of Affairs or Net Worth Method.
2. Trading and Profit and Loss A/c and Balance Sheet using the conversion method.

Preparation of Statement of Affairs

It is a statement that shows all the assets on one side and all the liabilities on the other side. It is similar to the Balance Sheet. With the help of this statement, we find the capital employed which is the difference between the assets and liabilities.

We prepare the Statement of Affairs at the beginning of the year to ascertain the opening capital and at the end of the year to ascertain the closing capital. However, the items of assets and liabilities are ascertained from vouchers, physical count and other relevant documents.

Performa of Statement of Affairs

Statement of Affairs

As at ……..

Note: When the liabilities are more than assets, then the capital will have a debit balance.

Preparation of Statement of Profit or Loss

After ascertaining the opening and closing capital with the help of the Statement of Affairs, the next step is to prepare the Statement of Profit and Loss. The adjustments relating to the additional capital and drawings during the year are required to be made for the ascertainment of Profit and Loss

Performa of Statement of Profit or Loss

Statement of Profit or Loss

For the year ending……..

The positive amount denotes profit while the negative amount denotes the loss.

EXAMPLES

Kalpana runs a small boutique. She keeps her books on single entry basis. On 1^st April 2017, her records disclose the following: Sewing Machines ₹50000, Building ₹250000, Stock ₹150000, Cash ₹40000, Bank ₹500000, Debtors ₹80000, Creditors ₹95000, outstanding wages ₹5000. On 31^st March 2018 her position is as follows: Sewing Machines ₹60000, Building ₹250000, Stock ₹200000, Cash ₹60000, Bank ₹750000, Debtors ₹90000, Creditors ₹75000, outstanding wages ₹2000, advance from customers ₹50000. She introduced additional capital of ₹60000 and withdrew ₹10000 every month for her personal expenses. Calculate the profit for the year.

SOLUTION

Statement of Affairs as on 1^st April 2017

Statement of Affairs as on 31^st March 2018

Statement of Profit or Loss (For the year ending 31^st March 2018)

EVALUATION:    1. Define statement of affairs

2. What is required in the ascertainment of profit and loss?

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively