Accounts from incomplete records

Learning Objectives :

After studing this chapter, students shall be able to :

  • Define the concept of incomplete records
  • Distingnish between Double entry system and Accounts from Incomplete records.
  • Ascertain the amount of profit or loss using" Statment of Affairs" method.
  • Differntiate between Balance Sheet and Statement of Affairs.
  • Prepare Statement of Affairs using given data.

Suggested Methodology

  • Illustration Method
  • Discussion Method

Some small size business entities do not follow the double entry system of maintaining the accounting recods because :

  • It is very costly system.
  • It is a time consuming method, and
  • It requires expert staff to adhere the principles and accounting standards of
    this system.

Due to the above mentioned reasons, some business entities maintaines books of accounts under the system Accounting from Incomplete records. Under this system only the following accounts are maintained

  • The cash book, and
  • The personal accounts of debtors and creditors.

NOTE : Real and Nominal accounts are not maintained under this system.

Under this system of maintaining accounts :

  • Both the aspects of only certain transactions are recorded. For example cash received from debtors or cash paid to creditors.
  • One aspect of some transactions are recorded. For example cash paid for purchase of goods.
  • Some financial events are not recerded at all. For example depreciation charged on fixed assets.

Kohler defines it as :
A system of book keeping in which as a rule, only records of cash and of personal accounts are maintained; It is always incomplete double entry system, varying with circumstances.

Points to Remember :
  • Accounting Principles and Accounting Standards are not followed properly under this system.
  • Original vouchers provide base for preparing the accounts.
  • This method is highly flexible because it can be adjusted according to the need of the organisation.
  • Profit or loss is ascertained by either Statement of Affairs method or 'Conversion into 'Double Entry System Method'.

SUITABILITY OF INCOMPLETE RECORDS

Books according to this system can be maintained only by those small entities in
the form of

  • Sole Proprietorship ; or
  • Partnership

That are not bound to keep records of business transactions as per double entry system. Companies cannot maintain books under this system because of legal provisions.

Limitations of Incomplete Records :

  1. Incomplete method - This method is incomplete method of maintaining the ac counting records as both the aspects, debit and credit, of every transaction are not recorded.

  2. Unscientific System - This system is an unscientific system as not set rules are followed for recording the business transactions.

  3. Arithmatical Accuracy cannot be cheked - Under this system no real and nominal accounts are maintained. As such a trial balance cannot be prepared to check the arithmatical accuracy of the books of accounts.

  4. True Profit or Loss cannot be ascertained - In the absence of trial balance, a trading and profit and loss account cannot be prepared and hence the profit or lossascertained during a partiular period is based on estimates, hence cannot be relied upon.

  5. True financial position of the business cannot be Judged - Since real accounts are not maintained, it is not possible to prepare a balance sheet showing the true financial position of the buusiness.
    A Statement of Affairs is prepared to show the financial position of the business which itself shows the estimated values of assets and liabilities.

  6. Changes of Errors and Frauds - Under this system the principles of double entry system are not followed hence internal checking is not possible. It leads to changes of errors and frauds. Also, it becomes very difficult to detect them.

 

CBSE Accountancy Class XI ( By Mr. Aniruddh Maheshwari ) 
Email Id : [email protected]

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