Single Entry and Incomplete Records

Lecture Notes

Incomplete records problems occur when a business does not have a full set of accounting
records, for one of the following reasons:
 The proprietor of the business does not keep a full set of accounts.
 Some of the business accounts are accidentally lost or destroyed.

Given the above situations, the problem for the accountant is to prepare a set of year-end
accounts for the business; i.e. an Income Statement and a Statement of Financial Position from
incomplete information. Since the business does not have a full set of accounts, preparing the
final accounts is not a simple matter of closing off accounts and transferring balances to the
Statement of Profit or Loss and other Comprehensive Income, Income and Expense Account, or
showing outstanding balances in the Statement of Financial Position. The task of preparing the
final accounts involves the following:
(a) Establishing the cost of purchases and other expenses
(b) Establishing the total amount of sales
(c) Establishing the amount of accounts payable, accruals, accounts receivable and
prepayments at the end of the year.

The great merit of incomplete records problems is that they focus attention on the relationship
between cash received and paid, sales and accounts receivable, purchases and accounts payable,
inventory, as well as calling for the preparation of final accounts.

In Accounting, the Double Entry Principle is very critical for keeping complete records to
produce financial statements. However, small businesses owners are not always aware of this
principle. As such, they may tend to document the transactions that occur in their business in a
diary format. In addition, they may also leave out certain critical information that is important to
producing financial information. This information may be needed for different reasons such as,
obtaining credit, accessing a loan, income tax purposes or accessing the performance of the
business. As such, the accountant has to use the Single Entry and Incomplete Records
approach to calculate the business’ profit. One way is to see “Profit as an Increase in
Capital”.

Profit as an Increase in Capital – The Business Equation

Unless there has been an introduction of extra cash or resources into the firm, the only way that
capital can be increased is by making profits. Therefore, profits can be found by comparing
capital at the end of the last period with that at the end of this period.

For instance, if a firm’s capital at the end of 2017 was Tshs.2,000,000 and 2015 it was
Tshs.3,000,000 with no extra resources introduced or withdrawn (drawings) then:
 This Year’s Last Year’s
Capital Capital
Net Profit = Tshs.3,000,000 - Tshs.2,000,000 =Tshs.1,000,000

If there had been drawings of Tshs.700,000 then the profits would have been calculated as
follows:

This Year’s Last Year’s Net Profit Drawings

Capital Capital
Tshs.3,000,000 =Tshs.2,000,000 + ? - Tshs.700,000

If the above formula is transposed to find the missing figure then profits will be:

Tshs.2,000,000 - Tshs.3,000,000 + Tshs.700,000 =Tshs.1,700,000

Example
H. Williams has not kept proper bookkeeping records, but he has kept notes in diary form of the
transactions of his business. He is able to give to you details of his assets and liabilities as at
December 31, 2015 and at December 31, 2016 as follows:
At December 31, 2015:
Assets: Motor Van Tshs.10,000,000; Fixtures Tshs.7,000,000; Inventory Tshs.8,500,000; Trade
Accounts Receivables Tshs.9,500,000; Bank Tshs.11,000,000, Cash Tshs.1,000,000
Liabilities: Trade Payable Tshs.2,000,000; Loan from J Justin Tshs.6,000,000
At December 31, 2016:
Assets: Motor Van (after depreciation) Tshs.8,000,000; Fixtures (after depreciation)
Tshs.6,300,000; Inventory Tshs.9,900,000; Trade Accounts Receivables Tshs.12,400,000; Bank
Tshs.17,000,000, Cash Tshs.2,000,000
Liabilities: Trade Payable Tshs.3,000,000; Loan from J Justin Tshs.4,000,000; Drawings
Tshs.9,000,000

A Statement of Affairs will have to be drawn up as at 2015 and 2016. A Statement of Affairs is
a statement from which the capital is deduced by estimating assets and liabilities.
Then Capital = Assets – Liabilities.

H. Williams
Statement of Affairs as at December 31, 2015
Non Current Assets Tshs. Tshs.

Motor Van 10,000,000

Fixtures 7,000,000
17,000000
Current Assets
Inventory 8,500,000
Trade Accounts Receivables 9,500,000
Bank 11,000,000
Cash 1,000,000
30,000,000
Total Assets 47,000,000
H. Williams
Statement of Affairs as at December 31, 2015

Capital and Liabilities

Proprietor’s Capital (difference) 39,000,000

Non-Current Liabilities
Loan from J Justin 6,000,000

Current Liabilities
Trade Accounts Payable 2,000,000
Total Capital and Liabilities 47,000,000

H. Williams
Statement of Affairs as at December 31, 2016
Non-current Assets Tshs. Tshs.

Motor Van 8,000,000

Fixtures 6,300,000
14,300,000
Current Assets
Inventory 9,900,000
Trade Accounts Receivables 12,400,000
Bank 17,000,000
Cash 2,000,000
41,300,000
Total Assets 55,600,000
 Capital and Liabilities
Proprietor’s Capital
Balance as at Jan 1, 2016 39,000,000
Add Net Profit (C) 18,600,000
(B) 57,600,000
Less Drawings 9,000,000
(A) 48,600,000
Non-Current Liabilities
Loan from J Justin 4,000,000

Current Liabilities
Trade Accounts Payable 3,000,000
Total Capital and Liabilities 55,600,000

Opening Capital + Net Profits – Drawings = Closing Capital

We will have to find the profit by working backwards:
(A) is Non-Current Liabilities + Current Liabilities – Total Assets = Tshs.52,600,000 –
Tshs.4,000,000 = Tshs.48,600,000
(B) is (A [Closing Capital]) + Drawings = Tshs.48,600,000 + Tshs.9,000,000 =
Tshs.57,600,000
(C) is (B) – Opening Capital = Tshs.18,600,000

This method of calculating profits is unsatisfactory as it is much more informative when an

Income Statement can be drawn up. A business would have exactly the same Income Statement
and Statement of Financial Position whether they kept their books by single entry or by double
entry. However, whereas the double entry uses the trial balance in preparing the final accounts,
the single entry will have to arrive at the same answer by the following five steps using the
example of J. Frank:
The accountant discerns the following details of transactions for J. Frank’s retail store for the
year ended December 31, 2015:

1. The sales are mostly on a credit basis. No record of sales has been made, but
Tshs.10,000,000 has been received Tshs.9,500,000 by cheque and Tshs.500,000 by cash,
from persons to whom goods have been sold.
2. Amount paid by cheque to suppliers during the year =Tshs.7,200,000.
3. Expenses paid during the year: by cheque, rent Tshs.200,000, general expenses
Tshs.180,000; by cash rent Tshs.50,000
4. J. Frank took Tshs.10,000 cash per week (for 52 weeks) as drawings.
5. Other information available:
 At Dec. 31, 2014 At Dec. 31, 2015
Tshs. Tshs.
Trade Accounts Receivables 1,100,000 1,320,000
Trade Accounts Payables 400,000 650,000
Rent owing - 50,000
Bank balance 1,130,000 3,050,000
Cash Balance 80,000 10,000
Inventory 1,590,000 1,700,000

6. The only Non-Current Asset consists of fixtures which were valued at December 31,
2014 at Tshs.800,000. These are to be depreciated at 10% per annum.

The approach to incomplete records questions is to build up the information given so as to

complete the necessary double entry. This may involve reconstructing control accounts for:
 Cash and Bank
 Trade Accounts Receivable and Payable

Stage 1 – Determine the Opening Position of the Company

Draw up an Opening Statement of Financial Position to determine the company’s opening
position. This would also be the company’s financial position at the closing day of the last
financial period.

J. Frank
Statement of Financial Position as at December 31, 2014

Non-Current Assets Tshs.

Tshs.
Fixtures 800,000

Current Assets
Inventory 1,590,000
Trade Accounts Receivable 1,100,000
 Bank 1,130,000
Cash 80,000
3,900,000
4,700,000
Capital and Liabilities
Proprietor’s Capital (difference) 4,300,000

Current Liabilities
Trade Accounts Payable 400,000
Total Capital and Liabilities
4,700,000

Stage 2 – The Cash Book

Information about cash receipts or payments might be needed to establish:
(a) The amount of purchases during a period
(b) The amount of credit sales during a period

Other items of receipts or payments might be relevant to establishing:

(a) The amount of cash sales

(b) The amount of certain expenses in the Income Statement
(c) The amount of withdrawals on the account of profit by the business proprietor

A small business will not keep a day-to-day record of its cash receipts and payments (cash book),
since many of its sales and payment transactions are for cash (i.e. notes, coins, cheques, or credit
cards). However, where there appears to be a sizeable volume of receipts and payments in cash
(i.e. notes and coins), then it would be helpful to construct a two column cash book.

Two Column Cash Book is a cash book with one column for receipts and payments, and one for
money paid into and out of the business bank account.
A cash and bank summary is drawn up showing the totals of each separate item plus opening and
closing balances:
Cash Bank Cash Bank
Tshs. Tshs. Tshs. Tshs.
Balance b/d 80,000 1,130,000 Suppliers 7,200,000
Receipt from 500,000 9,500,000 Rent 50,000 200,000
Receivables General Expense 180,000
Drawings 520,000
Balance c/d 10,000 3,050,000
580,000 10,630,000 580,000 10,630,000
Theft of cash from the till
When cash is stolen from the till, the amount stolen will be a credit entry in the cash book, and a
debit in the either the net profit section (Income and Expenses Account) of the Income Statement
or insurance claim account, depending on whether the business is insured. The missing figure
for the cash sales, if this has to be calculated, must not ignore cash received but later stolen.

Stage 3 – Calculate Purchases and Sales Figures

It is necessary to calculate the figures for sales and purchases to be shown in the trading account.
Credit Sales and Trade Accounts Receivable
If a business does not keep a record of its sales on credit, the value of these sales can be derived
from the opening balance of trade accounts receivable, the closing balance of trade accounts
receivable, and the payments received from customers during the period. The sales figure will
only equal receipts where all the sales are for cash. Therefore, the receipts figures need adjusting
to find sales. This can only be done by constructing a receivables control account, the sales
figure being the one needed to make the totals agree or using the following formula:

Formula for Credit Sales

Payments from trade accounts receivable
X
Less Opening balance of trade accounts receivable (these represent sales in a
previous period)
(X)
Add Closing balance of trade accounts receivable (since these represent sales
in the current period for which cash payments has not yet been received)
X

X
The receivables control account usually looks like the receivables ledger account.
Receivables Control Account
Tshs. Tshs.
Balance b/d 1,100,000 Receipts: Cash 500,000
Sales (missing figure) 10,220,000 Cheque 9,500,000
Balance c/d 1,320,000
11,320,000 11,320,000
Irrecoverable Debts (Bad Debts)
If there are irrecoverable debts during the period, the value of sales will be increased by the
amount of irrecoverable debts written off, no matter whether they relate to opening receivables
or credit sales during the current period.
The same interrelationship between credit sales, cash from receivables, and opening and closing
receivables balances can be used to derive a missing figure for cash from receivables, or opening
or closing receivables, given the values for the three other items. For example, if we know that
opening receivables are Tshs.7,600, closing receivables are Tshs.3,200 and credit sales for the
period are Tshs.69,400, then cash from receivables during the period would be as follows:

Receivables Control Account

Tshs. Tshs.
Opening Balance b/d 6,700,000 Cash Receipts (Balancing Figure) 72,900,000
Sales (on credit) 69,400,000 Closing Balance c/d 3,200,000
76,100,000 76,100,000

An alternative way of presenting the same calculation would be:

Opening balance of accounts receivable 6,700,000

Credit Sales during the period 69,400,000
Total Money owed to the business 76,100,000
Less Closing balance of accounts receivable (3,200,000)
Equals cash received during the period 72,900,000

Purchases and Trade Accounts Payable

A similar relationship exists between purchases of inventory during a period, the opening and
closing balances for trade accounts payable, and amounts paid to suppliers during the period. In
double entry, purchases mean the goods that have been bought in the period, irrespective of
whether they have been paid for or not during that time. The figure of payments to suppliers
must therefore be adjusted to find the figure for purchases. If we wish to calculate an unknown
amount for purchases, the amount would be as follows:

Payments to Trade Accounts Payable X

Less Opening balance on trade accounts payable (these debts, paid in the current period,
Relate to purchases in a previous period)
(X)
Add Closing balance of trade accounts payable (since these represent purchases
in the current period for which payment has not yet been made)
X
Goods bought in this year, that is purchases
X

Paid during the year 7,200,000

Less payments made, but which were for goods
which were purchased in a previous (payables 31/12/2014) 400,000
6,800,000
Add purchases made in this year, but for which
Payments has yet not been payment (creditors 31/12/2015) 650,000
Goods bought in this year, that is purchases 7,450,000

The same answer could have been obtained if the information had been in the form of a payables
control T-account, the figure for purchases being the amount required to make the account totals
agree.

Payables Control Account

Tshs. Tshs.
Cash paid to suppliers 7,200,000 Balance b/d 400,000
Balance c/d 650,000 Purchases (missing figure) 7,450,000
7,850,000 7,850,000

Stage 4 – Calculate Expenses

Where there are no accrued or prepaid expenses, either at the beginning or end of the accounting
period, then expenses paid will equal expenses used up during the period. These figures will be
charged to the Income Statement.
On the other hand, where such prepayments or accruals exist, then an expense account should be
drawn up for that particular item using the opening balance b/f, the closing balance c/f and cash
payments for the item during the period. A prepayment in the expense account will have a debit
opening balance b/f since it is a current asset. On the other hand, an accrual in the expense
account will have a credit opening balance b/f since it is a current liability.

When all known items are entered, the missing figure will be the expenses to be charged for the
accounting period. In this case, only the rent account needs to be drawn up.
Rent
Tshs. Tshs.
Cheques 200,000 Rent (missing figure) 300,000
Cash 50,000
Accrued c/d 50,000
300,000 300,000
Stage 5 – Produce Closing Financial Statements
It is now practicable to produce closing financial statements since key figures have been found.
J. Frank
Income Statement for the year ended December 31, 2015
Tshs. Tshs.

Sales (Stage3) 10,220,000

Less Cost of Goods Sold:
Opening Inventory 1,590,000
Add Purchases (Stage 3) 7,450,000
9,040,000
Less Closing Inventory 1,700,000
7,430,000
Gross Profit 2,880,000
Less Expenses
Rent (Stage 4) 300,000
General expense 180,000
Depreciation 80,000 560,000
Net Profit 2,320,000

H. Williams
Statement of Affairs as at December 31, 2016

Non-Current Assets Tshs. Tshs.

Fixtures 800,000
Less Depreciation 80,000 720,000

Current Assets
Inventory 1,700,000
Trade Accounts Receivables 1,320,000
Bank 3,050,000
Cash 10,000
6,080,000
Total Assets 6,800,000

H. Williams
 Statement of Affairs as at December 31, 2006

Capital and Liabilities

Proprietor’s Capital
Balance as at Jan 1, 2015 (Stage 1) 4,300,000
Add Net Profit 2,320,000
6,620,000
Less Drawings 520,000
6,100,000
Current Liabilities
Trade Accounts Payables 650,000
Rent Owing 50,000 700,000
Total Capital and Liabilities 6,800,000

Disadvantages of Single Entry Recording

Someone without a double entry set of books will not be able to ascertain the following easily

 Trade Receivables – They will not know who owes money, how much and how long the
money has been owed.
 Trade Payables – They will not know to whom they owe money, how much and how
long it has been owed.
 No proper checks on amounts paid – for non-current assets over the years.
 No proper checks on amounts owing – for loans.
It will also make it easier for employees to defraud the business, e.g. by destroying sales invoices
and getting money from the debtor for doing this.

A More Comprehensive Approach to Incomplete Records

Step 1 – If possible, and if it is not already known, establish the Opening Statement of
Financial Position and the Proprietor’s Interest (Capital).

Step 2 – Open up accounts for a two column cash book (if cash sales are significant and there are
payments in cash out of the till), a trade receivable Control Account, a trade payables control
account.

Step 3 – Enter the opening balances in these accounts.

Step 4 – Work though the information you are given line by line; and each item should be entered into
the appropriate account if it is relevant to one or more of these four accounts.

You should also try to recognize each item as an ‘income or expense item or a ‘closing
statement of financial position item’.
 It may be necessary to calculate an amount for withdrawals on account and an amount for non-
current asset depreciation.

Step 5 – Look for the balancing figures in your accounts. In particular you might be
looking for a value for credit sales, cash sales, purchases, the cost of goods sold,
the cost of goods stolen or destroyed, or the closing bank balance. Calculate these
missing figures, and make any necessary double entry (e.g. to the trading account
from trade accounts payable for purchases, to the trading account from the cash
book for cash sales, and to the trading account from trade accounts receivable for
credit sales).

Step 6 – Now complete the income statement and statement of financial position. Working T-accounts
might be needed where there are accruals and prepayments.
Single Entry and Incomplete Records
Worksheet

1. On 1 August 2006 S. Phillips started his business with Tshs.1,000,000 in his bank
account. After the end of his first year of trading he realized that, because of his lack of
bookkeeping knowledge, he was unable to prepare a statement of financial position. He
was, however, able to produce the following data for the year ended 31 July 2017.

Tshs.
Furniture 800,000
Motor vehicles (cost Tshs.2,100,00) 1,600,000
Inventory 2,700,000
Trade Accounts Payable 3,300,000
Cash in hand 50,000
Balance at bank (overdrawn) 1,000,000
Trade Accounts Receivable 1,600,000
Loan from B. Daudi 200,000
Drawings 3,000,000

You are required to:

(a) ascertain his profit or loss for the year ended 31 July 2017;
(b) prepare his Statement of Financial Position as at 31 July 2017, showing
clearly all the totals and subtotals normally found in a such a statement.

2. J. Marco is a dealer who has not kept proper books of account. At 31 August 2016 her
state of affairs was as follows.

Tshs.
Cash 115,000
Bank balance 2,209,000
Fixtures 3,500,000
Inventory 16,740,000
Trade Accounts Receivables 11,890,000
Trade Accounts Payable 9,952,000
Motor van (at valuation) 3,500,000

During the year to 31 August 2017 her drawings amounted to Tshs.7,560,000.

Winnings from a football pool Tshs.12,800,000 were put into the business. Extra
fixtures were bought for Tshs.2,000,000.

At 31 August 2007 J. Marco’s assets and liabilities were: cash, Tshs.84,000; bank
overdraft, Tshs.165,000; inventory, Tshs.24,891,000; trade payables for goods,
Tshs.6,002,000; payables for expenses, Tshs.236,000; fixtures to be depreciated,
 Tshs.300,000; motor van to be valued at Tshs.2,800,000; trade receivables,
Tshs.15,821,000; prepaid expenses, Tshs.72,000.

Draw up a statement showing the profit or loss made by Marco for the year ended
31 August 2017.

3. Javier Hernandez is a sole trader who, although keeping very good records, does not
operate a full double entry. The following figures have been taken from her records.

31 March 2018 31 March 2019

Tshs. Tshs.
Cash at bank 1,460,000 1,740,000
Office furniture 600,000 500,000
Inventory 2,320,000 2,620,000
Cash in hand 60,000 80,000

Trade Accounts Receivable on 31 March 2018 amounted to Tshs.2,980,000 and

sales for the year ended 31 March 2019 to Tshs.11,520,000. During the year
ended 31 March 2019 cash received from receivables amounted to
Tshs.10,820,000.

Trade Accounts Payables on 31 March 2018 amounted to Tshs.1,880,000 and

purchases for the year ended 31 March 2019 to Tshs.8,120,000. During the year
ended 31 March 2019 cash paid to trade payables amounted to Tshs.7,780,000.

During the year to 31 March 2019 no bad debts were incurred. Also, during the
same period there was neither discount allowed nor discount received.

Required:
Calculate receivables and payables as at 31 March 2019;
(a) calculate Javier Hernandez’ capital as at 31 March 2018 and 31 March 2019;
(b) Calculate his net profit for the year ended 31 March 2019, allowing for the
fact that during that year his drawings amounted to Tshs.2,540,000.
Note: Calculations must be shown.

4. S. Agnes has lost his record of sales, and you will have to deduce the sales figure. The
summary of his bank account for the year ended 31 December 2016 is as follows.

Tshs. Tshs.
Receipts from receivables 67,595,000 Balance 1 Jan 2006 2,059,000
 Extra capital introduced 3,000,000 Suppliers for goods 49,382,000
Motor expenses 4,624,000
Rent and rates 3,728,000
General expenses 846,000
Fixtures bought 3,500,000
Drawings 1,364,000
_____ Balance 31 Dec 2006 5,092,000
70,595,000 70,595,000

A cash loan of Tshs.500,000 had been received on 1 July 2016. Interest is to be paid on this at
the rate of 16% per annum. Cash payments were as follows:

Tshs.
Drawings 6,070,000
Suppliers 406,000
General expenses 707,000

Cash received from receivables was Tshs.6,630,000

Motor vans owned by the firm had cost Tshs.8,000,000 in January 2014, and depreciation
should be written off at 25% using the reducing balance method. Fixtures costing
Tshs.2,000,000 had been bought in January 2013 and depreciation is being written off at
the rate of 10%, using the straight-line method.
The following information is also given.
31.12.2015 31.12.2016
Tshs. Tshs.
Inventory 10,500,000 11,370,000
Cash in hand 165,000 112,000
Trade Payables 6,238,000 4,187,000
Trade Receivables 16,840,000 19,385,000
Motor expenses owing 123,000 238,000
Rent paid in advance 115,000 -
Rent owing - 230,000
You are required to:
(a) draw up the receivables and payables control accounts;
(b) draw up the cash account summary for the year;
(c) calculate opening capital as on 1 January 2016;
(d) Prepare the Income Statement for the year ended 31 December 2016 and a Statement of
Financial Position as at that date.