Teaching team:

[Link]. Uzziel Hategekimana (Gikondo) 0788620046

[Link]. Benoit Kanyangira (Gikondo)07885165231
[Link]. Mpambara Frederic (Huye) 0788856627
[Link]. Mwiza Yvette (Huye) 0788561560
[Link]. Nalubega Cisy (Nyagatare) 0788219639
[Link]. Tumwine James (Nyagatare) 0788484804
[Link]. Jean Claude Mbonimpa (Rusizi) 0735637119
Learning outcomes
 This topic aims at imparting students with
knowledge and skills on how to set up books of
Accounts for an entity with incomplete records
 After successful completion of this topic
students will be able to:
a) Identify different reasons why an entity may lack
proper records in accounts
b) Know and use of different techniques to trace
missing records and figures
c) Prepare final accounts
Introduction
 Incomplete records are any accounting records, which fall short of complete
double entry. (Recall double entry where every transaction is recorded twice
in two different accounts.)

 When accounts are kept whereby double entry is not followed or followed
partly then this is single entry. There are different degrees of incompleteness.

There may be no records at all that are kept

There may be partial/single entry

Reasons for incomplete records may be due to:

- Lack of accounting knowledge by owners of businesses, expensive accounting
expertise due to size of the business or
- Records may have been destroyed in a natural disaster like fire, floods, war or
theft.
If no records are kept at all
This may be due to lack of accounting knowledge or loss of records due
to natural disaster. In such circumstances the accounts will need to be
reconstructed from estimates and whatever evidence that can be
collected.

Single entry alone

 This may be due to lack of accounting knowledge and that expertise
being expensive. Here records may be kept of personal accounts
(debtors and creditors but the nominal accounts will not be kept.) In
such a situation it will be hard to extract a trial balance to enable
preparation of final accounts (to show the profit or loss for the period
and financial position).
Preparation of final accounts
1. Use of extended accounting equation

 To know the financial performance and position, the opening and

closing capital information is obtained and compared. Any other
information like drawings and additional capital is also obtained. The
accounting equation is then used to determine the profit or loss for
the period.

 The accounting equation in extended format is as follows

Opening capital + additional capital + Profit(loss) –
Drawings = Closing capital
Example 1
The following information is provided for Johnson traders.
(i) Capital at 1 October 2017, FRw230,000.
(ii) Total assets at 30 September 2018, FRw1,010,000.
(iii) Total liabilities at 30 September 2018, FRw530,000.
(iv) Inventory taken by Johnson, the proprietor, for his personal use on 1
April 2018, FRw50,200.
(v) Cash drawings by Johnson during the year to 30 September 2018,
FRw3,500 per week.(52 weeks the year)
(vi) Legacy received by Johnson on the death of a relative and paid into
the business bank account on 1 September 2018, FRw70,300.
Required:
 Calculate the profit of JohnsonTraders for the year to 30
September 2018.
Example2
Nsabimana who runs a small supplies store in Rusizi, had the following assets
and liabilities at the start of the year and end of the year 2018.
Assets and liabilities 1st 31st
January December
FRw. FRw.
Furniture 3,000 6,000
Stock 6,000 7,500
Debtors 4,500 5,400
Cash 450 600
Creditors 3,600 4,500
Expenses owing 300 1,200
Income accrued 600 2,100
During the year Nsabimana withdrew FRw.4,500 and introduced FRw.3,000 which was
a donation to him by a leading non-governmental organization in the area.
He decided to depreciate furniture 10% of cost at the end of the year and to
create an Allowance for bad debts of 10% on the debtors balance at the end of
the year.
Required: Determine profit or loss the year 2018.
Solution
To determine the opening and closing capital balance it will be necessary to
draw the statement of affairs as at the 1st January and 31st December 2018 as
follows.
Statement of affairs As at 1st January 2018
Rwf Rwf. Rwf.
Non-current Assets
Furniture 3,000
Current assets
Stocks 6,000
Debtors 4,500
Income accrued 600
Cash 450 11,550
14,550
Capital* 10,650
Current liabilities
Creditors 3,600
Expenses owing 300 3,900
14,550
*Capital is obtained as the balancing figure
 Statement of affairs As at 31st December 2018
FRw. FRw. FRw.
Non-current Assets Cost Depr’n Net
Furniture 6,000 (600) 5,400
Current assets
Stocks 7,500
Debtors 5,400

Prov’n for bad debts (540) 4,860

Income accrued 2,100
Cash 600 15,060
20,460
Capital* 14,760
Current liabilities
Creditors 4,500
Expenses owing 1,200 5,700
*Capital is obtained as the balancing figure
20,460
To obtain the profit or loss for the period, a statement of profit or loss
is drawn as follows, following the accounting equation .

Statement of profit or loss for the year ended 31 st December 2018

FRw
Closing capital balance (as at 31st December) 14,760

Drawings 4,500
Additional capital (3,000)
Opening capital (as at 1st January) (10,650)
Profit for the year 5,610
Exercise 2
Bill Biruta took out a statement of his financial position on 1 April 2018 which showed
the following: in Frw
 Sundry accounts payable 850,500
 Sundry accounts receivable 720,000
 Inventory in trade 135,000
 Cash and bank 45,000
 Furniture and fittings 265,500
After one year, during which Bill Biruta introduced additional capital of FRw50,000 and
withdrew FRw22,500 for his own requirements, his position was:
 Sundry accounts payable 683,100
 Sundry accounts receivable 540,000
 Inventory in trade 84,000
 Cash and bank 135,000
 Furniture and fittings 239,000
Required:
(a) statements of affairs to show Bill Biruta's capital position as at 1 April 2018 and
his new capital position one year later.
(b) a statement showing the profit or loss made by Bill Biruta for the year.
 2. Use of control accounts
-The Total Trade receivables account is used to calculate total credit & cash sales and
- The Total Trade payables account is used to calculate total credit & cash purchases.
Example 1
Antoine Traders had the following figures for the Years ended:
31st December 2017 31st December 2018
FRw FRw
Trade receivables 34,500 53,600
For the year ended 31st December 2018:
Cash sales :FRw1,500 ; Cash receipts from debtors: FRw1060
Discounts allowed: FRw45 ; Bad debts: FRw56

Trade receivables control account

FRw. FRw.
Opening balance 34,500 Discounts allowed 45
Bad debt 56
Cash from customers 1060
Cash sales 1,500
Sales (Cash and credit) 21,761 Closing balance 53,600
56,261 56,261
Example 2
Calculate the total purchases for the year ended 31st December 2009 from the following
information:
Trade payables at 1st Jan 2009 : FRw 2,450
Trade payables at Dec 31st 2009 :FRw1,200
Payments to creditors during the year : Cash FRw3,609;
Cheque FRw2,870
Cash purchases for the year : FRw1,000
Discounts received: FRw35
 3. Use of ratios
Mark – up% = Gross profit x 100 =MU%
Cost of sales
=M%
Margin %= Gross profit x 100
Sales

Relationship between the two ratios

1) If the margin is known, the mark – up can be found out: Take the same numerator of
the margin; the denominator is the difference of the denominator and the numerator
of the Margin e.g. If the Margin is 20% (1/5) then the Mark-up is 1/4
M x 100
Mu%= 100 - M

2) If the mark – up is known, the margin can be found out: Take the same numerator to
be the numerator of the margin; the denominator is the total of the mark- up’s
numerator and denominator. e.g. if Mark – up is 25% ( ¼) then the Margin is 1/5
(20%)
Mux100
M% =
100  Mu
Use of ratios
Items Frw
Stock on 1/10/2018 970,000
Stock on 30/09/2019 1,480,000
Purchases 2,750,000
Drawings ( Goods ) 850,000
Drawings ( cash ) 980,000
Gross Profit Margin 25%

Given the following Information:

Required: determine (i) Gross profit ( 3 marks ); (ii) Sales ( 2marks )
1) Opening stock + purchases – Drawings of goods – closing stock
= cost of sales
970,000 + 2,750,000 – 850,000 – 1,480,000 = 1,390,000

2) Mark up = Gross profit margin

1 – Gross profit margin

= 0.25/1-0.25 = 0.25/0.75 = 25/75 = 1/3(1Marks)

After getting the markup; Gross profit is = cost of sales x markup

Gross profit = 1,390,000 x 1/3 = 463,333 (1Marks)
Sales = Gross profit + cost of sales =

463,333 + 1,390,000 = 1,853,333(2Marks)

Sales = 1,853,333frw
Example
Tom provides the following information for the year ended 31st December 2019:
Rwf
Margin = 25%
Sales 20,000
Inventory at 1st January 2019 4,500
Inventory at 31st December 2019 4,800
Prepare a Trading Account to show the calculation of the purchases for the year.
Solution:
Tom’s Income statement for the year ended 31st Dec., 2019

Rwf Rwf
Sales 20,000
Less Cost of Goods sold:
Inventory at 1st Jan., 2019 4,500
Add Purchases * 15,300
Less Inventory at 31st Dec. 2019 4,800
Cost of sales (15,000)
Gross Profit 5,000
Workings:
Gross profit x 100
** Margin %=
Sales
25 = Gross profit x 100
20,000
25 x 20,000
= Gross Profit
100

Rwf 5,000 = Gross Profit

* Sales – (Opening Inventory + Purchases – Closing Inventory)= Gross Profit

20,000 – ( 4,500 + Purchases – 4,800) = 5000

20,000 + 300 – Purchases = 5000

20,300 – 5,000 = Purchases

Rwf 15,300 = Purchases

 4. Use of all techniques
Steps:
1. Draw a statement of affairs at the commencement of the period
2. Prepare cash and bank accounts if not existing
3. Determine the sales and purchases of the period by use of control
accounts (sales ledger control account and purchases ledger
control account.)
4. Determine expenses and income for the period after adjusting for
accruals and prepayments.
5. Adjust other current assets like debtors and inventory. Depreciate
the non-current assets taking care of any acquisitions and disposal
during the year.
6. Get other information like drawings (of cash or goods), additional
capital, any theft or other disaster.
7. Prepare the final accounts in the light of all the information given.
There may be use of common ratios to determine missing figures
like sales, purchases, other balances or loss due to natural disaster.
 Example 1 : The following is a summary of Jane’s account for the year ended
31/12/2019
1.1.2019 31.12.2019
Inventory 108,000 122,000
Accounts payables for goods 127,000 141,000
Accounts receivables for goods 212,000 198,000
Insurance prepaid 4,200 4,400
Rent owing 3,900 -
Fixtures at valuation 18,000 16,000

All of the business takings have been paid into the bank with the exception
of Rwf 174,000. Out of this, Jane has paid wages of Rwf 112,600, drawings
Rwf 12,000 and purchases of goods Rwf 49,400.
The following additional information is available for Bank Account
Rwf Rwf
Balance 1.1.2019 41,000 Payments to creditors for goods 673,600
Cash banked 911,900 Rent 39,500
Balance 31.12.2019 63,000 Insurance 14,700
Sundry expenses 6,100
Drawings 282,000
1,015,900 1,015,900
Required: Drawing up financial statements for the year ended 31/12/2019.
Show all of your workings
Answer 1
Statement of affairs as at 1/1/2019
Non-current asset
Fixtures 18,000
Current assets
Inventory 108,000
Accounts receivable 212,000
Insurance prepaid 4,200
Bank 41,000 365,200
Total assets 383,200
Current liabilities
Rent owing 3,900
Accounts payable 127,000 (130,900)
Opening Capital 252,300

Cash a/c
Sales – cash 1,085,900 wages 112,600
drawings 12,000
Purchases 49,400
Cash sales banked 911,900
Total 1,085,900 1,085,900
 Sales ledger control a/c

Balance b/d 212,000 Receipts : cash 1,085,900

Sales(missing figure) 1,071,900 Balance c/f 198,000

1,283,900 1,283,900

Purchases ledger control a/c

Paid to suppliers – bank 673,600 Balance b/d 127,000
cash 49,400 Purchases(missing figure) 737,000
Balance c/d 141,000
Total 864,000 864,000
 Income Statement for the year ending 31 December
2019
Sales 1,071,900
Less Cost of sales
Inventory at 1.1.2019 108,000
Purchases 737,000
Inventory at 31.12.2019 (122,000) 723,000
Gross profit 348,900
Less expenses
Wages 112,600
Rent (39,500-3,900) 35,600
Insurance(14,700 + 4,200 – 4400) 14,500

Sundry expenses 6,100

Depreciation fixtures 2,000 (170,800)
Net profit 178,100
 Balance sheet as 31 December 2019
Non current assets
Fixtures at valuation 18,000
Less depreciation 2,000
16,000
Current assets
inventory 122,000
Accounts receivables 198,000
Prepayments 4,400 324,400
TOTAL ASSETS 340,400
Liabilities
Accounts payables 141,000
Bank overdraft 63,000 (204,000)
Net current assets 136,400
Financed by :
Opening capital 252,300
Net profit 178,100
430,400
Less drawings (282,000+12,000) (294,000)
136,400
Example1: The following is a summary of Max’s bank account for the year ended 31/12/ 2019
FRw FRw
Balance 1st Jan. 2019 5,000 Payment to creditors 20,000
Receipts from debtors 35,000 Rent 12,000
Balance 31st Dec. 2019 6,220 Insurance 400
Office expenses 270
Drawings 13,550
Total 46,220 Total 46,220
All of the business takings have been paid into the bank with the exception of FRw5,600. Out
of this, Max paid wages of FRw2,500,drawings of FRw600 and purchase of goods FRw2,500
Additional information available:
As at 31/12/2018 As at 31/12/ 2019
Rwf Rwf
Inventory 22,000 17,000
Trade payables 5,300 5,000
Trade receivables 12,000 19,000
Rent prepaid 0 50
Insurance owing 150 200
Machinery at valuation 4,700 4,350
Required: Prepare the financial statements for the year ended 31st December 2019.