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Q1 State the meaning of incomplete records? Ans: 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.
Q2 What are the possible reasons for keeping incomplete records? Ans: 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.
Q3 Distinguish between statement of affairs and balance sheet. Ans: 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. Q4 What practical difficulties are encountered by a trader due to incompleteness of accounting records? Ans: 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.