Incomplete records Cambridge IGCSE Accounting revision
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In plain words
Many small traders keep no proper books: a bank statement, a pile of invoices and a notebook. The profit can still be found. It takes detective work, and two ideas do most of it.
6 things to know
- A small business may not keep full double entry records because it saves time and money, and the owner may not know how. The drawbacks: errors and theft are harder to notice, and there is less information for running the business or for getting a loan.
- A statement of affairs lists the assets and liabilities at a date. Capital = assets − liabilities.
- Profit can be found from the change in capital: profit = closing capital − opening capital + drawings − capital introduced.
- Credit sales = money received from customers + closing trade receivables − opening trade receivables. Add any discount allowed, irrecoverable debts and sales returns.
- Credit purchases = money paid to suppliers + closing trade payables − opening trade payables. Add any discount received and purchases returns.
- With sales and purchases found, the statement of profit or loss and the statement of financial position are prepared in the usual way, with the usual adjustments.
Worked example
A trader's assets were $30 000 and liabilities $8000 at the start of the year. At the end, assets were $41 000 and liabilities $9500. During the year he took drawings of $12 000 and paid in extra capital of $3000. Calculate the profit for the year.
- Opening capital = 30 000 − 8000 = $22 000.
- Closing capital = 41 000 − 9500 = $31 500.
- Profit = 31 500 − 22 000 + 12 000 − 3000 = $18 500.
Tips and tricks
- Drawings are added back because they reduced the closing capital without being a loss. Capital introduced is deducted because it increased the capital without being profit.
- To find credit sales, think of the customers' accounts as one account and look for the missing figure. A quick sketch of that account avoids sign errors.
It lands in your notebook with its questions as flashcards.
Incomplete records: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
What is a statement of affairs?
Capital = assets − liabilities.
Opening capital $10 000, closing capital $14 000, drawings $5000. What is the profit?
14 000 − 10 000 + 5000.
Why is capital introduced deducted when finding profit from the change in capital?
Only the increase that came from trading is profit.
Payments to suppliers were $20 000. Trade payables were $3000 at the start and $3600 at the end. What were the credit purchases?
20 000 + 3600 − 3000.
Which is a reason for not keeping full double entry records?
The others are reasons for keeping full records.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Incomplete records
Cambridge IGCSE Accounting 0452 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Opening trade receivables are $4200 and closing trade receivables are $5100. Money received from credit customers was $38 400. Calculate the credit sales.[3]
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$39 300. 38 400 + 5100 − 4200.
Opening capital is $15 000 and closing capital is $17 500. Drawings were $8000 and no capital was introduced. Calculate the profit for the year.[3]
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$10 500. 17 500 − 15 000 + 8000.
State two disadvantages of not keeping full accounting records.[2]
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Errors and fraud are harder to detect. Less information is available for making decisions. (Also: it is harder to obtain a loan.)
Answers: Incomplete records
- 1. $39 300. 38 400 + 5100 − 4200.
- 2. $10 500. 17 500 − 15 000 + 8000.
- 3. Errors and fraud are harder to detect. Less information is available for making decisions. (Also: it is harder to obtain a loan.)