Single Entry and Incomplete Records – SS2 Financial Accounting Lesson Note (Second Term)

Incomplete records, also called single entry, are used by businesses that keep only records of receipts and payments, such as bank paying-in book counterfoils, chequebook counterfoils, bank statements, supplier invoices and copies of sales invoices. From these records, a profit and loss account and a balance sheet can still be prepared by following a set of steps.

Behavioural objectives

By the end of the lesson, students should be able to:

• name the records a business may keep when it does not use full double entry;
• list the six steps for preparing a P&L A/C and balance sheet from incomplete records;
• prepare an opening statement of affairs to find the opening capital;
• explain why control accounts for debtors and creditors are prepared;
• prepare a P&L A/C and balance sheet from a set of incomplete records.

What records do businesses keep under incomplete records?

Most businesses keep records of receipts and payments. The records may consist of bank paying-in book counterfoils, chequebook counterfoils and bank statements, in addition to supplier invoices and copies of sales invoices. From these records, it may be possible to prepare a P&L A/C and Balance Sheet.

What are the steps in preparing a P&L A/C and balance sheet from incomplete records?

The necessary steps are as follows:

1. Prepare an opening statement of affairs (to obtain the opening capital).
2. Prepare a receipts and payments A/C.
3. Prepare control A/Cs for debtors and creditors, if necessary, to calculate sales and purchases. The sales and purchases figures are needed to make the accounts balance.
4. Adjust the receipts and payments account for prepayments and accruals at the beginning and end of the period.
5. Calculate provisions for doubtful debts, depreciation and any other matters not mentioned above.
6. Prepare the P&L A/C and Balance Sheet from the information now available.

Evaluation

The only records that Azim has kept for his business are bank pay-in-book counterfoils, chequebook counterfoils and records of debtors and creditors. With these, it is possible to summarise his transactions with the bank in the year ended 31/12/03 as follows.

• Takings paid into the bank: N8000.
• Cheques drawn: payment to suppliers N2430, rent N600, electricity N320, postage and stationery N80, purchase of shop fittings N480, and cheques drawn for personal expenses N2700.

Azim banked all his takings after paying the following in cash: creditor for supplies N400 and sundry expenses N115.

Azim estimated his assets and liabilities on 1st January 2003 to be: shop fittings N1600, stock N1960, debtors N240, rent prepaid N80, bank balance N1500, cash in hand N50, creditors for goods N420 and electricity owing N130.

On 31st December 2003, Azim listed his assets and liabilities as follows: shop fittings N1800, stock N1520, debtors N380, rent prepaid N50, bank balance N2640, cash in hand N50, creditors for goods N390 and electricity owing N225.

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

Assignment

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