Incomplete Records (Cambridge International IGCSE Accounting)

Incomplete records

What are incomplete records?

• Incomplete records are accounting records kept by businesses that do not keep a full set of records

• This means the accounting principle of duality was not followed in the preparation of accounting transactions

• A business might keep incomplete records for several reasons:

  • The owner lacks the technical skills to prepare the records
  • It is the usual practice of the business to make single entries
  • Some accounting information may have been lost, damaged or stolen

What are the disadvantages of not maintaining a full set of accounting records?

• A trial balance cannot be prepared from incomplete records

  • Therefore the business is unable to use it as a way to verify the accuracy of the ledger accounts

• The owner is unable to determine the financial position of the business

  • The owner is unable to assess if the business will continue to trade in the future

• The owner is unable to make comparisons of its performance with previous years

• It is very difficult to detect fraud in the business

• Information is not readily available for banks and lenders

• It is challenging to identify areas for development and to make decisions

How can I prepare financial statements using incomplete records?

• You need to be able to use incomplete records to prepare:

  • An income statement

  • A statement of financial position

    • You will only be given incomplete records for sole traders

• Identify which information is missing

• Find the missing information using the following methods:

  • Preparing a statement of affairs

    • This is useful for finding the capital balance

  • Preparing the ledger accounts

    • These are useful for finding the cash and bank balances, expenses and income

  • Prepare the sales and purchases ledger control accounts

    • These are useful for finding credit sales, credit purchases, trade receivables and trade payables

  • Using mark-up, margin and inventory turnover

    • These are useful for finding sales, purchases, gross profit, inventory

Exam Hint You can spot questions involving incomplete records by looking out for the following phrases:

• "...does not keep full accounting records..."
• "...does not keep a full set of records ..."
• "...does not keep proper books of account ..."