How to Prepare Accounts from Incomplete Records

If you are appointed as accountant in any organisation who does not maintain his record on the basis of double entry system, it is your duty to prepare accounts on the basis of double entry system from incomplete record.


If you do not know its steps, we are explaining to you its main steps :

{Our Aim to Make Trading and Profit and Loss Account and Balance Sheet on the Basis of Double Entry System }

1st  Step : To Find Opening Capital 

What is the need of finding Opening Capital : It is useful for finding Closing Capital
        Closing Capital = Opening Capital + Net Profit - Drawing  

Opening capital can be found by making opening balance sheet. It is the excess of assets over liabilities. Just investigate the organisation, you can find different asset like furniture, vehicle, building and land. From one year ago's all bills of customers and suppliers will be useful for finding opening debtors and creditors.

2nd : To Make Cash Book

What is the need to make Cash Book : It is useful for showing closing balance of cash book as the current asset in the closing balance sheet. It is also helpful for find credit purchase, credit sale and other outstanding expenses and outstanding incomes. We can also find missing cash payments and cash incomes if there will difference between closing cash in our pocket and as per cash book. After making adjusted cash book, we can included all missing items.

Cash book is the book in which we record both cash and bank transactions. In the debit side we will show all cash and bank receipts. In the credit side, we will show all cash and bank payments.


3rd : To Find Credit Purchase 

What is the need to Find Credit Purchase : To find credit purchase is useful for finding the missing figure of sundry creditor. It will also be included in the cash purchase for making trading account. 

When we buy goods on credit, we will get the invoices. All these invoices will be useful for finding the figure of credit purchase.

4th : To Find Credit Sale 

What is the need to Find Credit Sale : To find credit sale is useful for finding the missing figure of sundry debtor. It will also be included in the cash sale for making trading account. 

When we buy goods on credit, we will get the invoices. All these invoices will be useful for finding the figure of credit purchase.

5th : To Find Closing Stock 

What is the need to Find Closing Stock: To find closing stock is useful for making trading account. It will also be included in the current assets of balance sheet. 

Example 

6th Step : To Find the Closing Balance of Sundry Creditors

What is the need to Find Closing Stock: Closing balance of sundry creditors  is used as current liability in our closing balance sheet. 

Prepare Sundry Creditors Account : Just show the opening balance of sundry creditors in the credit side. Calculated credit purchase will be gone its credit side. Cash payment to creditors will be shown in the debit side of creditor account. We show the purchase return out of credit purchase in the debit side of creditors account.  Balance will be the closing balance of creditors.

7th : To Find the Closing Balance of Sundry Debtors


What is the need to Find Closing balance of sundry debtors: Closing balance of sundry debtors  is used as current assets in our closing balance sheet. 

Prepare Sundry Debtors Account :  Just show the opening balance of sundry debtors in the debit side. Calculated credit sales will be gone its debit side. Cash received from debtors will be shown in the credit side of sundry debtors  account. We show the sale return out of credit sale in the credit side of sundry debtors account.  Balance will be the closing balance of creditors.


6th : To Make Trading and Profit Account of Current Year 

Now, we are able to prepare profit and loss account on basis of double entry system. In trading account, we will show the opening stock, net purchase and direct expenses in its debit side. In credit side, we will show net sales and closing stock which we calculated. Difference of debit and credit side will be gross profit which will be transferred to profit and loss account.

Now, we prepare profit and loss account. In the debit side, we will show all expenses. In the credit side, we show all incomes. Collect all the bills, you will find the information of your expenses and incomes. You can also take the help from your bank statements. We only show the revenue expenditures in the profit and loss account. Difference between income and expenses will either our net profit or net loss. It will be transferred to balance sheet.

7th : To Make Closing Balance Sheet 

Balance sheet is the list of all assets and liabilities. Take all the fixed assets from opening balance sheet. Deduct depreciation from respective fixed asset. Now, show the balance of fixed asset in closing balance sheet's asset side. Show also current assets in the asset side. Some missing figures like closing balance of cash book, closing balance of inventory, closing balance of debtors will be included in current assets. In the liability side, we will show calculated sundry creditors's closing balance and other liabilities. We also show the net closing capital by calculating following formula.

Closing Capital = Opening Capital + Net profit - Drawing

Example

Related :  Prepare Construction Accounts from Incomplete Records 

Important for Students : { This written lecture is the part of CS Accounting Notes}