Incomplete accounting records

The accounting records of many smaller nonprofits, such as clubs, cultural societies, and small businesses, are often maintained using a single-entry accounting system. However, the details of the financial activities of such organizations and companies are available in different documents such as bank statements, invoices, accounts, salary sheets and minute books.

There are two major disadvantages to these incomplete (not double-entry) accounting records: (1) A great deal of useful information can be lost. It is possible to prepare financial accounting statements from the information available, but this can be more difficult than when complete records are available. Some transactions may not be accounted for and there is also no continuity in the recording of financial information and other useful information. (2) The benefits of controls inherent in a double-entry accounting system are lost.

A discussion of the handling of incomplete records is helpful for several reasons. First, it emphasizes the advantage of a comprehensive double-bookkeeping system. Additionally, it is practical because accountants often have to prepare financial statements from incomplete records, primarily for income tax purposes. In practice, therefore, converting single-entry accounting information to a double-entry basis is an analytical exercise. It can also happen that a company’s double-entry accounting records are lost (for example, as a result of fire damage) and the accountant must reconstruct them from incomplete records. Consequently, attention is paid to certain practical aspects and procedures that arise as a result of keeping incomplete records.

Suppose a merchant has been in business for some time and you want to determine his interest in the business on a specific date. To do this, you must determine the total interest in the business and against this, take into account any outside interests. This can be done by building a declaration of assets. (Basically, it contains the same information as the balance sheet, but it is not prepared from account balances in a double-entry bookkeeping system.)

The statement of equity should be prepared by referring to any applicable information available. Taking into account that, companies that do not have formal accounting systems will find it necessary to keep records of certain basic information to carry out their business. For example, records of cash received and paid and amounts owed to both the business and the business are essential. Available cash can be determined by a cash count, cash in the bank from the bank statement, and amounts owed to and by the business from invoices. Stocks can be physically counted and valued. The cost of the fixed assets acquired can be determined from the supporting documentation. The net worth will be the difference between the values ​​assigned to assets and liabilities.

The most practical method of determining net profit or loss from incomplete accounting records is to analyze the change in the owner’s equity during any specific period. Obviously, the owner’s equity increases if a profit is made and when the owner makes additional investments in the business. Rather, the owner’s equity decreases as a result of the owner’s losses and drafts.