Maintaining Financial Records FA 2

1. Maintaining Financial RecordsFA 2 B Amrith Thilan B.B.A, ACCA Passed Finalist

2. ACCA - Maintaining Financial Records (FA 2) Incomplete Records Accounting records not strictly based on principles of double entry system but based on incomplete records and mere memory is known as accounting from incomplete records.

3. ACCA - Maintaining Financial Records (FA 2) Reasons for Incomplete Records • Improper Knowledgeof Accounting Principles • Inexpensive: This method is less expensive as compared to keeping records as per double entry system. • Time Saving: This method is time saving in the sense that only a few records are maintained under such system. • Convenient and Need Based: This method is very convenient in the sense that no rules and principles are to be followed.

4. ACCA - Maintaining Financial Records (FA 2) Overview It is essential to understand the accounting pathway from purchases through to the collection of cash as solving incomplete records problems involves moving up and down pathway, trying to work out any missing figures.

5. ACCA - Maintaining Financial Records (FA 2) Step 1 : Purchases Purchases, payables and payments can all be summarised on the Payables Ledger Control Account (or Total Payables Account):

6. ACCA - Maintaining Financial Records (FA 2) Step 2 : Cost of Sales Cost of Sales = Opening Inventory + Purchases – Closing Inventory

7. ACCA - Maintaining Financial Records (FA 2) Step 3 : Sales Credit sales, cash receipts, opening and closing receivables are linked up the Receivables Ledger Control Account (or Total Receivables account):

8. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding Opening receivables balance = $5,000 Closing receivables balance = $4,000 Sales on credit = $12,000 Cash sales = $2,000 What amount of cash has been collected from credit customers? A.11,000 B.12,000 C.13,000 D.14,000

9. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding Opening inventory = $5,000 Closing inventory = $8,000 Cost of sales = $15,000 What are purchases? A. 15,000 B. 12,000 C. 28,000 D. 18,000

10. ACCA - Maintaining Financial Records (FA 2) Gross Profit Percentages and Mark-Ups A gross profit percentage (or gross margin) is always defined with respect to the sales value. So a gross profit percentage of 20% means that gross profit is 20% of sales. It can be very useful to set out this information in the form of a ‘cost structure’: Cost of sales + Gross profit = Sales 80 20 100

11. ACCA - Maintaining Financial Records (FA 2) Gross Profit Percentages and Mark-Ups (Cont.) A mark-up percentage is always defined with respect to cost of sales. So a mark-up of 25% would mean that 25% is added to cost to give the selling price. Profits are 25% of costs. Once again a cost structure is very useful: Cost of sales + Gross profit = Sales 100 25 125

12. ACCA - Maintaining Financial Records (FA 2) Cash Account Drawing up a cash account can allow you to find missing items by balance. However, if you don’t know how much cash has come in from customers and how much the owner has taken out in drawings then you will have to do some extra research to find out the balance.

13. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding A company earns a mark-up of 33⅓% on all sales. Sales amount to $12,000. What are the profits and cost of sales? A. Cost of sales = $9,000; profit = $4,000 B. Cost of sales = $9,000; profit = $3,000 C. Cost of sales = $8,000; profit = $3,000 D. Cost of sales = $8,000; profit = $4,000

14. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding A company earns gross margin of 30% on all sales. The gross profit amounts to $21,000. What are cost of sales and sales? A. Cost of sales = $70,000; sales = $91,000 B. Cost of sales = $49,000; sales = $56,000 C. Cost of sales = $49,000; sales = $70,000 D. Cost of sales = $70,000; sales = $100,000

15. Maintaining Financial RecordsFA 2 B Amrith Thilan B.B.A, ACCA Passed Finalist