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Title : Accounting from Incomplete Records
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Accounting from Incomplete Records

Accounting from Incomplete Records

The common term to represent Accounting from Incomplete Records is – Single Entry System.

Normally Small Businesses and Sole Traders follow this kind of accounting system as it does not need any specific accounting knowledge and is easy to maintain.

The term Single Entry is commonly used to define the method of maintaining accounts which does notfollow the principles of double entry system of accounting. It does not mean that there is only one entry for each transaction – i.e. only one effect is given for each transaction. It simply means that the rules of double entry of accounting are not followed.

Under this system usually only the Cash A/c and Personal A/c’s are maintained. Nominal Accounts and Real Accounts (Except Cash) are not maintained.

According to Kohler, “A system of Book-Keeping in which as a rule only records of cash and personal accounts are maintained, it is always incomplete double entry varying with the circumstances.”

 Methods of Preparing accounts from Incomplete Method –

There are 2 methods of ascertaining the profit from incomplete records, they are –

1.      Statement of Affairs Method

2.      Conversion Method.

Statement of Affairs Method

This method is also known as Method of Capital Comparison or Net Worth Method. Under this method we are required to prepare a Statement of Capital at the start of the period and also at the end of the period. Each statement of affair would show the amount of Capital as on that date (as a Balancing Figure).

In the absence of real accounts in the books maintained on the single entry, it is not possible to prepare the Balance Sheet of the Business. Therefore, to judge the financial position of the business a statement known as the Statement of Affairs showing various assets and liabilities on a particular date is prepared from such information as may be available.

A statement of Affairs is very similar to a Balance Sheet as far as its preparation is concerned. However there are some technical differences between the two.

Differences between Statement of Affairs and Balance Sheet

The Financial position as disclosed by Balance Sheet is more reliable then that by the Statement of Affairs.

In statement of Affairs is the Balancing Figure, wherein the Balance Sheet balances and the capital is derived from the Capital A/c.

As the statement of Affairs is prepared from incomplete records it is possible that some assets/liabilities are omitted, in case of Balance Sheet such omission is not possible.

 Conversion Method

As we are aware that the books maintained under single entry system all the information is not available, so we need to prepare various accounts to identify some missing figures with the help of which we would be able to prepare Trial Balance and Final Accounts – Trading A/c, Profit & Loss A/c and Balance Sheet.

Under this method we need to prepare the following Accounts along with Opening Statement of Affairs.

1.      Cash A/c

2.      Total Debtors A/c

3.      Bills Receivable A/c

4.      Total Creditors A/c

5.      Bills Payable A/c

Note: Bills Receivable account is always to be closed before closing the Total Debtors and the balancing figure (Not the Closing Balance) in the Bills Receivable account is to be transfered to Total Debtors A/c

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