Accounts from Incomplete Records

  • By TeamKoncept
  • 7 July, 2023
Accounts from Incomplete Records

Accounts from Incomplete Records

Table of Content


Very often small sole proprietorship and partnership businesses do not maintain double entry book keeping system. They keep a record of the cash transactions and credit transactions only. But at the end of the accounting period, they will want to know the performance and financial position of their businesses. This creates some special problems to the accountants. This chapter discusses how to complete the accounts from available incomplete records and addresses the problems faced in a single entry system.

The term “Single Entry System” is popularly used to describe the problems of accounts from incomplete records. In practice, quack accountants follow some hybrid methods. For some transactions they complete double entries and for some others they complete just one aspect of the transaction. In fact, for some other transactions, they even do not pass any entry. Briefly, this may be stated as incomplete records. The task of the accountant is to establish link among the available information and to finalize these accounts.

  • It is an inaccurate, unscientific and unsystematic method of recording business transactions.
  • There is generally no record of real and nominal accounts and, in most of the cases; a record is kept for cash transactions and personal accounts.
  • Cash book mixes up business and personal transactions of the owners.
  • There is no uniformity in maintaining the records and the system may differ from firm to firm depending on the requirements and convenience of each firm.
  • Profit under this system is only an estimate based on available information and therefore true and correct profits cannot be determined. The same is the case with the financial position in the absence of a proper balance sheet.


A scrutiny of many procedures adopted in maintaining records under single entry system brings forth the existence of following three types:
  1. Pure single entry: In this, only personal accounts are maintained with the result that no information is available in respect of cash and bank balances, sales and purchases, etc. In view of its failure to provide even the basic information regarding cash etc., this method exists only on paper and has no practical application.
  2. Simple single entry: In this, only: (a) personal accounts, and (b) cash book are maintained. Although these accounts are kept on the basis of double entry system, postings from cash book are made only to personal accounts with no other account to be found in the ledger. Cash received from debtors or cash paid to creditors is simply noted on the bills issued or received as the case may be.
  3. Quasi single entry: In this: (a) personal accounts, (b) cash book, and (c) some subsidiary books are maintained. The main subsidiary books kept under this system are Sales book, Purchases book and Bills book. No separate record is maintained for discounts, which are entered into the personal accounts. In addition, some scattered information is also available in respect of few important items of expenses like wages, rent, rates, etc. In fact, this is the method which is generally adopted as a substitute for double entry system.


This method is also known as Net Worth method or Statement of Affairs Method.

If detailed information regarding revenue and expenses is not known, it becomes difficult to prepare profit and loss account. Instead by collecting information about assets and liabilities, it is easier to prepare balance sheet at two different points of time. So, while preparing accounts from incomplete records, if sufficient information is not available, it is better to follow the method of capital comparison to arrive at the profit/loss for the current year.

Methods of Capital Comparison

Closing capital increases if there is profit, while it reduces if there is loss incurred during the year. However, if the proprietor/partners make fresh investments in the business, capital increases; and any withdrawal made by them, decreases the capital. The following points shall be considered while computing the profit/loss under capital comparison method-

Particulars Amount
Capital at the end (a) xxx
Add: Drawings xxx
Less: Fresh capital introduced xxx
Capital at the beginning (b) xxx
Profit (a-b) xxx


Profit/Loss can also be ascertained as balancing figure by preparing capital account as follows:

Particulars Dr. Amount Particulars Cr. Amount
To drawings xxx By Balance b/d xxx
To Net Loss (Bal Fig) xxx By additional capital xxx
To Blance c/d xxx By Net Profit (Bal Fig.) xxx
  xxx   xxx

It is clear from the above discussion that to follow the capital comparison method, one should know the opening capital and closing capital. This should be determined by preparing statement of affairs at the two respective points of time. Capital = Assets(-) liabilities.
Thus, the preparation of statement of affairs will require listing up of assets and liabilities and their amount. The accountant utilizes the following sources for the purpose of finding out the assets and liabilities of a business enterprise:
  1. Cash book for cash balance
  2. Bank pass book for bank balance
  3. Personal ledger for debtors and creditors
  4. Inventory by actual counting and valuation.
  5. As regards fixed assets, he prepares a list of them. The proprietor would help him by disclosing the original cost and date of purchase. After deducting reasonable amount of depreciation, the written down value would be included in the Statement of Affairs.
After obtaining all necessary information about assets and liabilities, the next task of the accountant is to prepare statement of affairs at two different points in time.

The design of the statement of affairs is just like balance sheet as given below:

Statement of affairs as on...........
Liabilities Amount Assets Amount
Capital (Bal. Fig.) xxx Building xxx
Loans, Bank overdraft xxx Machinery xxx
Sundry creditors xxx Furniture xxx
Bills Payable xxx Inventory xxx
Outstanding expenses xxx Sundry debtors xxx
    Bills receivable xxx
    Loans and advances xxx
    Cash and Bank xxx
    Prepaid expenses xxx
  xxx   xxx

Now from the statement of affairs prepared at two different dates, the opening and closing capital balances can be obtained.
Difference between Statement of Affairs and Balance Sheet

Basis Statement of affairs Balance sheet
Source It is prepared on the basis of transactions partly recorded under the double entry book keeping and partly under the single entry. Most of the assets are recorded based on the estimates, assumptions, information gathered from memory rather from the records. It is based on transactions recorded strictly on the basis of double entry book keeping; each item in the balance sheet can be verified from the relevant subsidiary books, ledger and documentary evidences.
Capital In this statement, capital is merely a balancing figure being excess of assets over liabilities. Hence assets need not be equal to liabilities. Capital is derived from the capital account in the ledger and therefore the total of assets side will always be equal to the total of liabilities side.
Omission Since this statement is prepared from incomplete records, it is very difficult, to identify and record those assets and liabilities, if omitted from the books.
There is no possibility of omission of any item of asset and liability since all items are properly recorded. Moreover, it is easy to locate the missing items since the balance sheet will not agree.
Basis of Valuation The valuation of assets is generally done in an arbitrary manner; therefore no method of valuation is disclosed.
The valuation of assets is done on scientific basis, fixed assets are shown at the original costs less depreciation till date. Any change in the method of valuation is properly disclosed.
Objective The objective of preparing this statement is to identify the capital figures in the beginning and at the end of the accounting period respectively. The objective of preparing the balance sheet is to ascertain the financial position on a particular date.


When books of accounts are incomplete, it is essential to complete double entry in respect of all transactions. The whole accounting process should be carefully followed and Trial Balance should be drawn up.

General Techniques

Where the accounts of a business are incomplete, it is advisable to convert them first to the double entry system and then to draw up the Profit and Loss Account and the Balance Sheet, instead of determining the amount of profit/loss by preparing the statement of affairs. As books of accounts of different firms being incomplete in varying degrees, it is not possible to suggest a formula which could uniformly be applied for preparing final accounts therefrom. As a general rule, it is essential to first start the ledger accounts with the opening balances of assets, liabilities and the capital. Afterwards, each book of original entry should be separately dealt with, so as to complete the double entry by posting into the ledger all entries which have not been posted. For example, If only personal accounts have been posted from the Cash Book, debits and credits pertaining to nominal accounts and real accounts that are not posted, should be posted into the ledger. If there are Discount Columns in the Cash Book, the totals of discounts paid and received should be posted to Discounts Allowed and Discounts Received Accounts respectively, for completing the double entry.

Afterwards, the other subsidiary books, i.e., Purchases Day Book, Sales Day Book, Purchase Return Book, Sales Return Book, Bills Receivable and Bills Payable, etc. should be totaled up and their totals posted into the ledger to the debit or credit of the appropriate nominal or real accounts, as the personal aspect of the transactions have been posted already.

When an Accountant is engaged in posting the unposted items from the Cash Book and other subsidiary books, he may be confronted with a number of problems. The manner in which some of them may be dealt with is described below:
  1. In the Cash Book, there can be several receipt entries which have no connection with the business but which belong to the proprietor, e.g., interest collected on his private investment, legacies received by him, amount contributed by the proprietor from his private resources, etc. All those amounts should be credited to his capital account. Also the Cash Book may contain entries in respect of payments for proprietor’s purchases and his personal expenses. All such items should be taken to his capital account on the debit side.
  2. Amounts belonging to the business after collection may have been directly utilised for acquiring business assets or for meeting certain expenses instead of being recorded in the Cash Book. On the other hand, the proprietor may have met some of the business expenses from his private resources. In that case, the appropriate asset or expense account should be debited and the source of obtaining funds to be credited.
  3. If cash is short, because the proprietor had withdrawn amount without any entry having been made in the cash book the proprietor’s capital account should be debited. In fact, it will be necessary to debit or credit the proprietor’s capital account in respect of all unidentified amounts which cannot be adjusted anywhere else.
  4. Where the benefit of an item of an expense is received both by the proprietor and business, then it should be allocated between the two on some equitable basis e.g. rent of premises when the proprietor lives in the same premises, should be allocated on the basis of the area occupied by him for residence.
In the end, it will be possible to draw a Trial Balance. Students are advised to prepare a Trial balance as it will bring out any mistakes committed while making the above adjustments.

Derivation of Information from Cash Book

The analysis of cash as well as bank receipts and payments, should be extensive but under significant heads, so that various items of income and expenditure can be posted therefrom into the ledger. However before posting the information into the ledger the same should be collected in the form of an account, the specimen whereof is shown below:

Cash and Bank Summary Account for the year ended (assumed figure)

Particulars Cash Bank Particulars Cash Bank
To Balance in hand (opening) 590 7,400 By Expenses (Sundry Payments) 3,000  
To Sales 6,500   By Purchases 100 6,000
To Collection from Debtors   10,000 By sundry creditors   5,000
      By Drawings 1,500  
      By Petty expenses 800  
      By Rent   1,000
      By Electricity and water 350  
      By Repairs 350  
      By Wages   1,000
      By Balance in hand 990 4,400
  7,090 17,400   7,090 17,400

It is quite likely that some of the missing information will then be available. Consider the following about a firm relating to 31st March 20X2.

Particulars Amount
Cash Balance on 1st April, 20X1 250
Bank overdraft on 1st April, 20X1 5,400
Cash purchases 3,000
Collection from Sundry debtors 45,600
Sale of old furniture 750
Purchase of Machinery 12,000
Payment of Sundry creditors 26,370
Expenses 8,450
Fresh Capital brought in 5,000
Drawings 3,230
Cash Balance on 31st March, 20X2 310
Bank balance on 31st March, 20X2 1,180

Now prepare the cash and Bank Summary.

Cash and Bank Summary
Particulars Dr. Amount Particulars Cr. Amount
Cash Balance on 1-4-20X1 250 Bank overdraft on 1-4-20X1 5,400
Collection from Sundry debtors 45,600 Cash purchases 3,000
Sale of old furniture 700 Purchase of Machinery 12,000
Fresh Capital brought in 5,000 Payment to Sundry creditors 26,370
Balancing figure- (Cash sales) 8,340 Expenses 8,450
    Drawings 3,230
    Cash balance on 31-03-20X2 310
    Bank balance on 31-03-20X2 1,180
  59,940   59,940

See that debit side is short by ` 8,340. What may be the possible source of cash inflow?- It can be cash sales.
The important point about incomplete records is that much of the information may not be readily available and that the relevant information has to be ascertained. A good point is to prepare Cash and Bank Summary (if not available in proper form with both sides tallied). The cash and bank balance at the end should be reconciled with the cash and bank books. Having done so, the various items detailed on the Summary Statements, should be posted into the ledger.

Analysis of Sales Ledger and Purchase Ledger

Sales Ledger: It would disclose information pertaining to the opening balances of debtors, transactions made with them during the year such as goods sold to them on credit, bills receivable drawn on them, bills dishonored, if any; cash received from them, sales returns, discount, rebate or any other concession allowed to them, receipts of bills receivable, bad debts written off and transfers. Journal entries must be made by debiting or crediting the impersonal accounts concerned with contra credit or debit given to total debtors account.

Analysis of Sales Ledger of the year
  • Op. Customer Balance
  • Sales
  • Bills Dishonored
  • Total Debits
  • Cash Recd.
  • Discounts Allowed
  • Bills Received
  • Sales Returns
  • Bad Debts
  • Total Credit
  • Balance (cl.)
From the aforementioned, it will be possible to build up information about sales and other accounts which can then be posted in totals, if so desired. It would also be possible to prepare Total Debtors

Account in the following form:

Proforma of Total Debtors Account (assumed figures)
Particulars Dr. Amount Particulars Cr. Amount
To Opening balance 5,000 By Cash/Bank 10,000
To Sales 38,000 By Discount 500
To Bill dishonoured 280 By Bills receivable 20,000
To Interest 100 By Bad debts 280
    By Closing balance 12,600
  43,380   43,380

In can be seen from the above format that, if any one figure is not given it can be found out easily as the balancing figure. It can be opening balance, credit sales, cash collected or closing balance etc. For instance, if the information about sales is not available it could be ascertained as the balancing figure, i.e., in the total Debtors Account given above, if all other figures are given, amount of sales on credit basis can be easily ascertained.

Purchases Ledger: Generally speaking, a Purchases Ledger is not as commonly maintained as the Debtors Ledger for it being convenient to make entries in respect of outstanding liabilities at the time they are paid rather than when they are incurred. The information is available in respect of opening balance of the creditors, goods purchased on credit, bills payable accepted, bills payable dishonored; cash paid to the creditors during the year, discount and other concessions obtained, returns outwards and transfers. Here also, journal entries must be made by debiting or crediting the respective impersonal accounts. Contra credit or debit being given to total creditor’s account.

From the available information total creditors account 

Particulars Dr. Amount Particulars Cr. Amount
To Cash/bank 25,000 By Opening Balance 10,000
To Purchase Returns 400 By Purchases 30,400
To Bills payable 8,700 By Bill payable dishonoured 450
To discount received 100    
To Closing Balance 6,650    
  40,850   40,850

If a proper record of return to creditors, discount allowed by them etc., has not been kept, it may not be possible to write up the Total Creditors A/c. In such a case, net credit purchase can be ascertained as follows:

Cash paid to Creditors including on account of bills payable during the period ...............
Closing balance of Creditors and Bills Payable ...................
Total ___  _ ___
Less: Opening balance of Creditors and Bills Payable ...................
Net credit purchase during the period ...................
Cash paid to creditors during the period ...................
Add: Bills Payable issued to them ...................
Total ___  _ __

Closing balance of Creditors
Less: Opening balance of creditors ...................
Credit Purchases during the period ...................

Nominal Accounts: It is quite likely that the total expenditure shown by balance of nominal account may contain items of expenditure which do not relate to the year for which accounts are being prepared and, also, there may exist certain items of expenditure incurred but not paid, which have not been included therein. On that account, each and every account should be adjusted in the manner shown below (figures assumed):

  Cash and Particulars Amount Bank Payment Paid out of Accrued Total Private Fund Pre Payment Expenses for the period
  1 2 3 4 (1+2+3) 5 6 (4-5)
Rent & Rates 2,200 300 100 2,600 150 2,450
Salaries 4,500 500 1,000 6,000 250 5,750
Only the amount entered as “expenses for the period” should be posted to the respective nominal accounts. A similar adjustment of nominal accounts in respect of revenue receipt should be made.

Let us continue with the example given in para 4.2. Given some other information, how to compute credit purchase and credit sale is discussed below:

Opening balance (1-4-20X1)  
Inventory 20,000
Sundry Creditors 12,300
Sundry Debtors 15,000
Closing Balance (31-03-20X2)  
Inventory 15,000
Sundry Creditors 13,800
Sundry Debtors 25,600
CAsh paid to creditors 26,370
Cash received from debtors 45,600
Cash sales 8,340
Cash purchases 3,000
Discouunt received during the year 1,130
Discount allowed 1,870

What are the purchases for 20X1-20X2? Let us prepare the Sundry Creditors Account.

Sundry Creditors Account
Particulars Dr. Amount Particulars Cr. Amount
To Cash 26,370 By Balance b/d (opening) 12,300
To Discount (received) 1,130 By Purchases (balancing figure) 29,000
To Balance c/d (closing) 13,800    
  41,300   41,300

The credit purchases are ` 29,000; cash purchases are ` 3,000: hence total purchases are ` 32,000.

Likewise prepare the Sundry Debtors Account:

Sundry Debtors Account
Particulars Dr. Amount Particulars Cr. Amount
To Balance b/d 15,000 By Cash 45,600
To Credit sales (balancing figure) 58,070 By Discount (allowed) 1,870
    By Balance c/d 25,600
  73,070   73,070

So total sales = credit sales + cash sales
= ` 58,070 + ` 8,340 = ` 66,410
Distinction between Business Expenses and Drawings

It has been already stated that often the distinction is not made between business expenses and drawings. While completing accounts from incomplete records, it is necessary to scan the business transactions carefully to identify the existence of drawings.

The main items of drawings are (illustrative):
  • Rent of premises commonly used for residential as well as business purposes.
  • Common electricity and telephone bills.
  • Life insurance premiums of proprietor/partners paid from business cash.
  • Household expenses met from business cash.
  • Private loan paid to friends and relatives out of business cash.
  • Personal gifts made to any friends and relatives out of business cash.
  • Goods or services taken from the business for personal consumption.
  • Cash withdrawals to meet family expenses.
  • Amount collected from debtors directly used for meeting personal expenses.
So it is necessary to scan the summary of cash transactions, business resources and their utilization to assess the nature of drawings and its amount.

Fresh Investment by proprietors / partners

Like drawings, often fresh investments made by proprietors’/partners are not readily identifiable. It becomes necessary to scan the business transactions carefully. Apart from direct cash investment, fresh investments may take the following shape:
  • Money collected and put in the business on maturity of Life Insurance Policy of the proprietors.
  • Interest and dividend of personal investment of the proprietors collected and put in the business.
  • Income from non-business property collected and put in the business.
  • Payments made to creditors out of personal cash.
Unless these items are properly identified and segregated, business income will be affected and proper statement of affairs cannot be prepared.
From exam point of view

In the examination we would be given:
  1. Opening and closing assets and liabilities
  2. Cash transactions
  3. Other information
From this we have to prepare
  1. Trading Account
  2. Profit and loss account
  3. Balance Sheet
How to proceed

STEP I: Prepare format of
  1. Trading Account for the year
  2. Profit and loss account for the year
  3. Balance Sheet at the end of the year
And various other accounts as working notes as follows
  1. Opening Balance Sheet
  2. Cash Book (with two separated Cash and Bank column if possible)
  3. Total Debtors Account
  4. Bills Receivable Account (if required)
  5. Total creditors Account
  6. Bills payable Account (if required)
  7. Any particular fixed asset (if required)
  8. Any other account as required
  1. Do the posting of opening balances in the opening balance sheet and as opening balance in concerned account
  2. Do the posting of all the transactions on the basis of double entry.
  3. Take in to account all the information given
  4. Close all the accounts one by one logically, finding out missing figures and posting them to second account concerned. e.g. you can find cash collected from debtors from cash account , then post it to debtors account and find closing debtors etc.
  5. Complete the trading account, profit and Loss account and then balance sheet.
Single entry problem is just like su do ku, one must be able to find out missing figures logically and sequentially
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