Welcome to the Chapter 11 - Accounts from Incomplete Records, Class 11 Accountancy NCERT Solutions page. Here, we provide detailed question answers for Chapter 11 - Accounts from Incomplete Records. The page is designed to help students gain a thorough understanding of the concepts related to natural resources, their classification, and sustainable development.
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1. total debtors
2. opening capital, closing capital
3. fresh capital introduced, drawings.
4. small traders
Accounting records which are not prepared according to the principles of double entry are known as ‘incomplete records’. In other words, any accounting records which fall short of complete double entry are called incomplete records. Sometimes, it is also termed as ‘Single Entry System’ Incomplete records refer to maintaining only those records which are essential.
1. Simple Method : It is an easy and simple method of recording business transactions because it does not require any special knowledge of the principles of the double entry system.
2. Less Expensive : Only the cash book and some of the ledger accounts are maintained under this system. As such, the staff required for maintaining the accounts is also less in comparison to the double entry system.
3. Suitable for small concerns : This method is most suitable to small business concerns which have mostly cash transactions and very few assets and liabilities.
4. Easy to calculate profit or loss : It is easier to calculate profit or loss under this method. For this purpose, only the closing capital has to be compared with the opening capital along with some adjustments.
5. Flexible Method : The system is more practical and rejects the strict rules of double entry system. It can be easily changed and adjusted according to the needs of a particular business.
| Basic of Difference | Balance Sheet | Statement of Affairs |
|---|---|---|
| 1. Double Entry | It is prepared with the list of ledger balances drawn from the books of accounts kept on the basis of double entry. | It is not prepared with the list of ledger balances but with such information as is available from the accounting records kept on the basis of single entry. |
| 2. Arithmetical Accuracy | The tallying of balance sheet proves arithmetical accuracy of accounting books because it is prepared on the basis of a trial balance. | A statement of Affairs does not prove the arithmetical accuracy of accounting books because it is not prepared on the basis of a trial balance. |
| 3. Value of Assets and Liabilities | The values of assets and liabilities shown in a Balance Sheet are the actual values based on ledger accounts. | The values of assets and liabilities shown in the statement of Affairs are merely the estimates based on physical inspection. |
| 4. Object | It is prepared for ascertaining the financial position of a business. | It is prepared for ascertaining the capital of a business. |
| 5. Omission of an Asset or a Liability | If an asset or liability is omitted while preparing a Balance Sheet, it will be easily detected because the Balance Sheet will not tally. | If an asset or liability is omitted while preparing a statement of affairs, it cannot be easily detected. |
| 6. Reliability | A Balance Sheet is treated as more reliable because it is based on double entry principles. | It is treated as less reliable because it is based on incomplete records and estimates. |
The following are the difficulties that are encountered by a trader due to incompleteness of accounting records.
(i) Accuracy of Accounts : When incomplete records are maintained Arithmetical accuracy of accounts cannot be ensured.
(ii) Encourages Fraud : Incomplete records encourages fraud and provides sufficient scope for bluffing and carelessness.
(iii) Difficult to Analyse the True Financial Position : As profit or loss cannot be ascertained easily, so the Balance Sheet cannot be easily prepared. Hence, the absence of Balance Sheet will not reflect the true financial position of the business.
(iv) Difficulty in Comparison : Due to the incomplete records and non - availability of previous years date, comparison is not possible. Comparisons with other firms is also not possible.
(v) Unacceptable to Tax Authorities : Since they do not reflect the true and acceptable presentation of expenses and revenues. These are not acceptable by the tax authorities. Many other problems such as inconvenience in getting the profitability and liquidity of business, difficulty in getting fund from outside etc are encountered.
According to this method, the profits are ascertained by comparing the capital at the end and capital at the beginning of the accounting period. If the capital at the end of an accounting period is more than that at the beginning, the difference is treated as profit. If, on the other hand, the capital at the end is less than that of beginning, the difference is treated as loss.
As such, in order to ascertain profit according to this method, it is necessary to calculate the capital at the beginning of the year and also at the end of the year. Capital at the beginning is calculated by preparing an ‘Opening Statement of Affairs’ and similarly, capital at the end is calculated by preparing a ‘Closing Statement of Affairs’.
STATEMENT OF AFFAIRS
as at .................
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Bank Overdraft | Cash in hand | ||
| Bills Payable | Cash at Bank | ||
| Sundry Creditors | Bills Receivable | ||
| Outstanding Expenses | Sundry Debtors |
The profit and loss account and the balance sheet can be prepared from the incomplete book of accounts through Conversion method. According to this method, incomplete records are converted into double entry records. In case of incomplete records, details of some transactions are easily available like cash sales, cash purchases, creditors, debtors; however, there are a number of transactions, the details of which may not be available directly. Yet, these details can be found out indirectly or logically. Some of the important items that are vital for preparing balance sheet are given below,
a. Opening capital
b. Closing capital
c. Credit purchases
d. Cash purchases
e. Credit sales
f. Cash sales
g. Payment from debtors
h. Payment to creditors
i. Opening stock
j. Closing stock
Below are given are the steps included in the conversion method in a chronological order:
a. If opening capital is not given, then the first step is to prepare an opening statement of affairs that gives the opening capital.
b. The second step is to prepare a cash book that gives the opening or the closing cash and bank balancer.
c. The next step is to prepare a total debtors account. It is prepared in order to find one of the missing figures, such as credit sales, opening debtors, closing debtors and cash received from debtors.
d. The subsequent step is to prepare a total creditors account to ascertain one of the missing figures, such as credit sales, opening creditors, closing creditors and cash paid to the creditors.
e. The last step is to prepare final accounts. On the basis of the missing figures ascertained in each of the above steps, along with other mentioned information, Trading and profit and loss account and balance sheet can be prepared.
a. Opening capital and closing capital: Opening capital can be ascertained by preparing opening statement of affairs at the beginning of the accounting period and closing capital can be ascertained by preparing closing statement of affairs at the end of the accounting period.
b. Credit sales and credit purchases: Credit sales are ascertained as the balancing figure of the total debtors account and credit purchases are ascertained as the balancing figure of the total creditors account.
c. Payments to creditors and collection from debtors can be ascertained by preparing total creditors account and total debtors account respectively.
d. Closing the balance of cash may be ascertained by preparing a cash account.
(b) Unscientific
(d) Opening statement of affairs
(a) Total creditors account