Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Single entry and Incomplete records: Introduction
- It is not at all uncommon for business owners to have incomplete accounting records
- A lot of SMEs (small and medium enterprises) often do not keep double entry accounting systems
- Consider the example of a banana vendor it would be ridiculous for him to keep a double entry system
- In such cases this is because the transactions involved and the size of the business do not really require such as a system
- Often such a vendor would have a book where they write down their transactions so as not to forget
- These transactions are often in single entry format
- Sometimes the lack of proper accounting records can be due to the fact that the proprietors lack accounting training
- Most of these entities are not really required to prepare financial statements
- At some point however these entities might find the need to prepare financial statements
- For example when applying for loan with a bank the entity might be required to submit its proper financial statements
- Sometimes records might be destroyed in a fire or other “act of God”
- In such cases accountants have to create financial statements using incomplete records
- Indeed during Auditing exercises incomplete record techniques are often used to authenticate the books
- The thing is for a number of reasons it is important for an accounting student to learn how to:
- Calculate Profit and
- Prepare Financial Statements
- Now while the techniques employed in doing these vary in the real life in examinations the following stages are required to prepare financial statements from incomplete and single entry records:
- Prepare a Statement of Affairs
- Create a bank and cash account summary for the period showing opening and closing balances
- Calculate Purchases and Sales figures for the period
- Determine expenses and other income for the period
- Draw up the financial statements using this data
- We will examine each step in detail
To access more topics go to the Principles of Accounting Notes.