Incomplete Records, Single Entry and Statement of Affairs
What the domain tests
Incomplete records questions require you to reconstruct profit and financial position from cash books, receivables and payables, mark-ups and opening/closing statements of affairs. You often need to find missing sales, purchases, cash or drawings.
Core rules
- Statement of affairs: capital = assets - liabilities. Profit = closing capital + drawings - capital introduced - opening capital. A loss is negative profit.
- Use mark-up and margin carefully. Mark-up is on cost: sales = cost x (1 + mark-up). Margin is on sales: cost = sales x (1 - margin).
- Reconstruct ledger accounts: sales = cash received + closing receivables - opening receivables, adjusted for returns and discounts. Purchases = cash paid + closing payables - opening payables, adjusted for returns.
- A cash account summary finds missing cash, drawings or theft. Depreciation and bad debts reduce capital even without cash movement.
Worked example
Opening capital 80,000. Closing assets 150,000; closing liabilities 40,000, so closing capital = 110,000. Drawings 25,000; capital introduced 10,000. Profit = 110,000 + 25,000 - 10,000 - 80,000 = 45,000. Reason: drawings reduce capital, so add them back; capital introduced increases capital, so deduct it.
Traps
Do not use mark-up as margin. Do not ignore private payments by the owner; treat them as drawings. Do not forget depreciation in closing capital. Check whether goods taken by the owner are drawings or sales.