TOPIC 11: INCOMPLETE RECORDS | B/KEEPING FORM 3

Where only records available are the assets and liabilities at the beginning of the year and at the end of the year, it is not possible to prepare a Trading and Profit and Loss account. The assets and liabilities are usually listed in a Statement of Affairs (Similar to a Balance Sheet).
This would have been called a Balance Sheet if it had been drawn up from
a set of double entry records. Like a Balance Sheet, a Statement of
Affairs can be prepared horizontally or vertically.

The
only way the profit for the year can be found is by comparing the
capital shown in the opening Statement of Affairs with the capital shown
in the closing Statement of Affairs.The basic formula is:

Profit Loss = Closing Capital – Opening Capital (Positive figure means Profit and Negative figure means Loss)

It
may be that the owner has made drawings during the year, which will
account for some of the difference in the capital figures. Similarly the
owner might have brought in additional capital during the year, which
will also account for some of the difference in the capital figures. In
this case the formula must again be modified:-

Profit
or Loss = Closing Capital + Drawings during the year – Additional
Capital during the year – Opening Capital (Positive figure means Profit
and Negative figure means Loss)

Calculation of Profit or Loss by converting the Incomplete Records into Double entry Records,

In
this case, in order to calculate the profit or loss of the business
during the year, the Trading and Profit and Loss accounts are prepared.
For preparing the Trading and Profit and Loss accounts, all necessary
information is not available in the books. So first the missing items
have to be calculated which are necessary for the preparation of Trading
and Profit and Loss accounts.

The
loss on theft of cash and any other assets may be simply be expensed to
the income statement net of any insurance claim received or receivable.
Following accounting entries would therefore be required: