IGCSE Accounting 0452 - 5.6 Incomplete Records

This section focuses on preparing opening and closing statements of affairs when a business has incomplete accounting records. We will learn how to determine the balances of assets and liabilities based on the information available.

Understanding Incomplete Records

Incomplete records mean that a business does not have a full set of accounting records. This could be due to various reasons, such as a lack of systematic record-keeping, missing transactions, or errors in recording.

When dealing with incomplete records, we need to make reasonable assumptions and estimations to prepare statements of affairs.

Preparing an Opening Statement of Affairs

An opening statement of affairs shows the assets and liabilities of a business at the beginning of a period, even if full records are not available. It helps to understand the initial financial position of the business.

Steps to prepare an Opening Statement of Affairs

1. Identify the known assets and liabilities: List all the assets and liabilities that are known, even if the exact amounts are not available.
2. Estimate unknown asset values: Use available information to estimate the values of unknown assets. For example, if a business has a few old machines, we might estimate the value of other similar machines based on their purchase prices.
3. Estimate unknown liability values: Similarly, estimate the values of unknown liabilities. For example, if a business has a credit note from a supplier, we can estimate the amount owed to the supplier.
4. Prepare the statement in a table format: Present the assets and liabilities in a clear and organized table.

Format of Opening Statement of Affairs:

Asset/Liability	Amount
Cash at Bank	$1,500
Inventory	$800
Debtors	$1,200
Fixtures	$500
Loan from Owner	$2,000
Creditors	$900

Preparing a Closing Statement of Affairs

A closing statement of affairs shows the assets and liabilities of a business at the end of a period, based on incomplete records. It provides a snapshot of the business's financial position at that point.

Steps to prepare a Closing Statement of Affairs

1. Identify the known assets and liabilities: List all the assets and liabilities that are known at the end of the period.
2. Estimate unknown asset values: Use available information to estimate the values of unknown assets.
3. Estimate unknown liability values: Estimate the values of unknown liabilities.
4. Prepare the statement in a table format: Present the assets and liabilities in a clear and organized table.

Format of Closing Statement of Affairs:

Asset/Liability	Amount
Cash at Bank	$1,800
Inventory	$600
Debtors	$1,500
Fixtures	$550
Loan from Owner	$2,000
Creditors	$1,100

Example Scenario

A small business has the following known information at the end of the year:

• Cash at bank: $1,800
• Debtors: $1,500
• Fixtures: $550
• Loan from owner: $2,000
• Creditors: $1,100

The business does not have a complete record of its inventory or other assets. Based on available information, the estimated value of inventory is $600.

Closing Statement of Affairs:

Asset/Liability	Amount
Cash at Bank	$1,800
Inventory	$600
Debtors	$1,500
Fixtures	$550
Loan from Owner	$2,000
Creditors	$1,100

Note: This is just an example. In real-world scenarios, the estimation of unknown asset and liability values can be more complex and require careful judgment.