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Paper F3: Financial accounting (International)
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The nature of incomplete records
The meaning of incomplete records
Dealing with incomplete records
1 The nature of incomplete records
1.1 The meaning of incomplete records
Incomplete records, as the term suggests, are accounting records where information
is missing. Problems of incomplete records often arise with small businesses of sole
traders. The owner of the business does not bother to keep up-to-date accounting
records, and does not have a double entry book-keeping system. He simply keeps
invoices or receipts for expenses and copies of invoices to customers. In addition,
details of bank transactions can be obtained from a bank statement or other banking
records.
The task of the accountant is to use these invoices, receipts and banking records,
together with other information obtained from the business owner, to prepare
financial statements for the year (and in particular an income statement, which
provides a basis for calculating the taxable income of the business owner from his or
her business).
1.2 Dealing with incomplete records
In examinations, questions on incomplete records are useful for testing knowledge
and understanding of book-keeping and accounts. The task is often to identify the
missing figures that the incomplete records do not provide.
Examples of incomplete records described in this chapter include:
establishing the value of assets and liabilities to calculate the business capital,
particularly opening capital at the start of the financial period
using memorandum control accounts, for receivables or payables, to calculate
the sales or purchases for the period
using a memorandum account for bank and cash transactions, to establish a
missing figure for cash income or cash payments, such as a missing figure for
cash taken from the business by the owner as drawings
using the gross profit percentage to establish a cost of sales, or a missing figure
such as the value of inventory stolen or lost in a fire.