Accounting Articles for Students

Incomplete records

by Ronnie Patton | Published on 8/23/2004

Completing an incomplete records question is like completing a jigsaw puzzle – except that you have to create some of the pieces. Although such questions often look complicated, a simple methodology can be applied. To carry on with the jigsaw analogy, the methodology can be broken down into a few steps:

  1. put the pieces with straight edges in place
  2. find and place any pieces which are easily identified
  3. identify the gaps
  4. fill in the gaps
  5. complete the picture.

If you find jigsaws difficult, you’ll be relieved to know that these techniques are much easier to apply to incomplete records questions than to jigsaws!

Pieces with straight edges
The accounting equation (see Figure 1), which provides the basis for all bookkeeping might be thought of as the most important of the pieces with straight edges.

Figure 1: The accounting equation

Assets - Liabilities = Capital
Fixed assets Creditors  
Stock Accruals  
Debtors Overdraft  
Cash Loans  

If we know the value of the assets and liabilities at the start of the accounting period, we can use the accounting equation to establish the opening balance on the capital account. See Example 1.

Example 1
At the beginning of the year (1 July 2002), David Black had a van which cost £10,700 in August 2000. He depreciates the van at a rate of 20% per annum on the reducing balance basis, charging a full year’s depreciation in the year of purchase. He owed £2,780 to his suppliers and was owed £5,830 by customers. The cost of his stock at 1 July 2002 was £13,640. At that date he had cash in hand of £200 and a bank overdraft of £3,752.

Calculate David’s capital balance at 1 July 2002.


Van £6,848 (see working)
Debtors £5,830  
Stock £13,640  
Cash £200  
Total assets   £26,518
Creditors £2,780  
Overdraft £3,752 £ 6,532
Capital balance   £19,986

Working 1.1
Cost £10,700 in financial year 2000/2001
Thus depreciation has been charged for two years (2000/01 and 2001/02)
Year 1 Cost £10,700 less 20% = £8,560
Year 2 b/f £8,560 less 20% = £6,848

Pieces which are easily identified
By thinking logically, and using the information provided, we can begin to fill in the detail. Most incomplete records questions will require the key control accounts (bank, debtors and creditors) to be completed. This can be done by preparing ledger accounts (see Figure 2). It is essential to use the basic rule that assets are debit balances, and liabilities are credit balances, as the starting point for these ledger accounts. This will help to avoid costly mistakes. This is particularly the case when completing the bank account. If the opening balance is cash at bank, it will be a debit balance. However, if it is an overdraft, it will be a credit balance.

Figure 2: Key control accounts

Identify the gaps
When completing the bank account, remember that some of the cash received may have been used to pay expenses and/or drawings. This means that although the amount actually lodged to the bank will be known, a calculation must be completed to work out how much has been received from customers. This must be done before the total value of sales can be calculated. A simple working is shown in Example 2, which also shows how the control accounts are used. Another simple calculation may be needed to work out the amount paid to suppliers. This figure can then be used to calculate the value of purchases.

Example 2
(NB the information in Example 1 also applies here)
During the year David lodged £82,674 to the bank account. This was after paying cash expenses of £750 and drawings of £6,600. It also included £2,500 of capital introduced. The total value of cheques issued was £74,849. Of this amount £12,800 was drawings, and £15,948 was for expenses. The remainder represented payments to suppliers. At 30 June 2003, he owed £3,465 to his suppliers, he was owed £6,276 by customers and the cost of his stock was £7,644.

Fill in the gaps
By completing the control accounts, the missing information can be obtained. In Example 2, the closing bank balance, the total purchases and total sales can be easily calculated by balancing off the account.

Complete the picture
Most of the key figures to complete the final accounts are now available. Example 3 shows how these key figures can be combined to produce the draft accounts. However, it is important to include depreciation. The question will provide information about the depreciation policy. This policy should be applied to calculate the depreciation charge for the year, and the net book value of the fixed assets.

Example 3
Using the information in Examples 1 and 2, draft David’s final accounts.

David Black – Trading and Profit and Loss Account for the year ended 30 June 2003:


Other possible gaps - Margin/Mark up
In some questions, some of the information in Examples 1 to 3 may be replaced by the percentage margin or mark up.

In such questions, it is essential to be clear on the difference between margin and mark up:

Margin is gross profit as a percentage of sales.
In our examples the margin is:
£35,188 x 100 = 40%

Mark up is gross profit as a percentage of cost of sales. In our examples the mark up is £35,188 x 100 = 662/3%

If the question includes information on mark up or margin, this will usually mean that some of the gross profit information must be calculated.

While this makes the question a little more difficult, the methodology is exactly the same – draft out the ledger accounts and fill in as many gaps as possible. Then apply the mark up or margin percentage to calculate the required figure. Examples 4 and 5 illustrate how mark up and margin percentages are used.

Example 4
Assume that the information in Examples 1 to 3 did not include the value of closing stock. Instead, the question noted that the gross profit margin was 40%. This means that the trading account can not be completed until the amount of gross profit is calculated. This is done by multiplying the sales figure by the margin % to obtain the amount of gross profit, and therefore the total cost of sales. The values for the trading account are calculated as shown below:

Sales £87,970 x 40% = £35,188 (gross profit)
Gross profit = Sales - Cost of sales, thus:
Cost of sales = Sales - Gross profit, thus
Cost of sales = £87,970 - £35,188 = £52,782
Opening stock + Purchases - Closing stock = Cost of sales, thus:
Opening stock + Purchases - Cost of sales = Closing stock, thus
Closing stock = £13,640 + £46,786 - £52,782 = £7,644

Example 5
Assume that the information in Examples 1, 2 and 3 did not include the value of closing stock. Instead the question noted that the mark up was 662/3%. The values for the trading account are calculated as shown below:
Sales = Cost of sales x (100 + mark up%), thus we can conclude that sales must be 1662/3% of Cost of sales.
Sales have been calculated to be £87,970, thus:

Cost of sales is £87,970 x (100/1662/3) = £52,782

Alternatively, we could calculate gross profit first

Gross profit must be £87,970 x
(662/3 /1662/3),

£87,970 x (662/3%/1662/3%) = £35,188

This means that Cost of sales is £87,970 - £35,188 = £52,782

as in Example 4,
Opening stock + Purchases - Closing stock = Cost of sales, thus:
Opening stock + Purchases - Cost of sales = Closing stock, thus
Closing stock = £13,640 + £46,786 - £52,782 = £7,644.

Remember, while the analogy of completing a jigsaw may be a useful illustration, there is a further key difference when completing an incomplete records question. With a jigsaw, it is invariably the case that some of the pieces are lost. This means that it isn’t possible to fill in all of the gaps. In an exam, you can be sure that the question will provide enough information to allow you to fill in all the gaps that the question requires. Your task is to restructure the information which is provided in the question to produce the final picture. The methodology discussed in this article will assist you to do this.

© 2004 Association of Chartered Certified Accountants. Reprinted with permission.

Article courtesy of ACCA

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