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INCOMPLETE RECORDS

3. INCOMPLETE RECORDS. LEARNING OUTCOME: TO PREPARE ACCOUNTING RECORDS AND REPORTS FROM INCOMPLETE OR SINGLE-ENTRY ACCOUNTING SYSTEMS AND CONVERT THEM TO DOUBLE-ENTRY SYSTEMS. KEY TERMS. analysis method comparison method double-entry incomplete records reconstruction single-entry

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INCOMPLETE RECORDS

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  1. 3 INCOMPLETE RECORDS LEARNING OUTCOME: TO PREPARE ACCOUNTING RECORDS AND REPORTS FROM INCOMPLETE OR SINGLE-ENTRY ACCOUNTING SYSTEMS AND CONVERT THEM TO DOUBLE-ENTRY SYSTEMS  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  2. KEY TERMS • analysis method • comparison method • double-entry • incomplete records • reconstruction • single-entry • statement to ascertain profit  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  3. REASONS FOR INADEQUATE BUSINESS RECORDS • Lack of accounting knowledge • Main concentration on primary activity • Lack of knowledge on legislative requirements for accounting record • Hiding cash transactions for tax avoidance • Confusing business and personal banking transactions • Lost accounting records e.g. via theft or fire  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  4. SOURCES OF INFORMATION • Bank records • Accounts receivable • Accounts payable • Business Activity Statements • Instalment Activity Statements • Insurance companies • Finance or banking organisations • The previous accountant  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  5. ADVANTAGES OF DOUBLE-ENTRY ACCOUNTING • Balancing control (debits = credits) • All transactions are recorded • Easier to detect fraudulent practices and errors • Records are kept of business assets • Liabilities are known • Profit and loss calculated on regular basis  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  6. ADVANTAGES OF DOUBLE-ENTRY ACCOUNTING • Budget comparisons can be made • Ratios, business trends, sales forecasts and management information easily determined • Easy to comply with legislative requirements such as GST, income tax and company law  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  7. CALCULATING PROFIT AND LOSSES • THE COMPARISON METHOD • Used when there is very little business information available • Many assumptions need to be made • Comparison is made between the closing Statements of Financial Position for two financial years to determine changes in the owner’s equity during that period • The comparison is called ‘Statement to Ascertain Profit’  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  8. STATEMENT TO ASCERTAIN PROFIT Use information from two consecutive years to determine net assets for each year NET ASSETS = OWNER’S EQUITY Verify net profit using comparison method  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  9. CALCULATING PROFIT AND LOSSES • THE ANALYSIS METHOD • Revenue and expense accounting are reconstructed to obtain missing data • Examples are: • Accounts receivable account to ascertain credit sales • Accounts payable account to ascertain credit purchases • Depreciation and accumulated depreciation and disposal of assets • Balance day adjustments (accruals and prepayments)  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  10. CALCULATION OF CREDIT SALES Illustration 3F (page 63)  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  11. CALCULATION OF CREDIT PURCHASES Illustration 3G (page 64)  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

  12. SUMMARY: Analysis method Statement to ascertain profit Accumulated depreciation Depreciation Closing balance Accounts receivable Credit sales Closing balance Net profit Statement of Financial Position Accounts payable Credit purchases Closing balance Inventories Opening/closing balances Closing balance Opening general journal entry  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis, slides prepared by Kaye Watson

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