records : Incomplete records refer to, lack of accounting records according to the double entry system. Degree of incompleteness may vary from highly disorganised records to organised, but still not complete. . Difference between statement of affairs and balance sheet : A statement of affairs is a statement showing various assets and liabilities of a firm on date, with difference between the two sides denoting capital.
Since, the records are incomplete, the values of assets and liabilities are normally estimates based on information available. They are not the balances taken from properly maintained ledger like in case of balance sheet. The balance sheet is derived from a set of books maintained on the basis of double entry system. .
Computation of profit and loss from incomplete records : The statement of affairs is used to compute capital when a firm has a highly disorganised set of incomplete records. To the difference between the closing and opening capital, any sum withdrawn from business are added back and any additional capital introduced during the year are deducted to find out profit and loss made for the period. . Preparation of profit and loss account and balance sheet : When cash summary of a firm is available along with information about personal accounts of creditors and customers, an attempt can be made to prepare the profit and loss account and balance sheet.
Missing figures about purchases, sales, debtors and creditors can be obtained by preparing proforma accounts of debtors, creditors, bills receivable and bills payable using the logic of double entry system. Once a profit and loss account and balance sheet are prepared, it will be possible for the firm to start a complete accounting system for future. Questions for Practice Short Answers . State the meaning of incomplete records?
. What are the possible reasons for keeping incomplete records? . Distinguish between statement of affairs and balance sheet.
. What practical difficulties are encountered by a trader due to incompleteness of accounting records? Long Answers . What is meant by a ‘statement of affairs’?
How can the profit or loss of