CONTENT: (i) Introduction (ii) Steps Involved in preparing a P&L A/C and Balance Sheet from Incomplete Records (iii) Example
Most businesses keep records of receipts and payments. The records may consist of bank paying – in – book counterfoils, cheque book counterfoils and bank statements in addition to supplies invoices and copies of sales invoices. From these records it may be possible to prepare a P&L A/C and Balance Sheet.
ii STEPS INVOLVED IN PREPARING A P&L A/C AND BALANCE SHEET FROM INCOMPLETE RECORDS;- The necessary steps are as follows:-
Step 1: Preparing an opening statement of affairs (so as to obtain opening capital)
Step 2: Prepare a receipt and payments A/C
Step 3: Prepare control A/CS for debtors and creditors, if necessary to calculate sales and purchases. It is the sales and purchase figure that will be required to make the account balance.
Step 4: Adjust the receipts and payments accounts prepayments and accruals at beginning and end of the period.
Step 5: Calculate provisions for doubtful debts, depreciation and any other matters not mentioned above.
Step 6: Prepare the P&L A/C and Balance Sheet from the information now available
1. What is the purpose of the opening statement of affairs in complete records?
2. What is the debtors control account prepared to reveal?
1. Essential Financial Accounting by O.A. Longe Page 371 – 384
2. Accounting by Harold Randall Page 279 – 290
- Debtors control account reveals (a) debtors (b) creditors (c) cash received (d)sales
- In incomplete records creditors control account is prepared to reveal (a) sundry creditors (b) purchases (c) cash paid to creditors (d) discount received
- In adjustment accounts prepaid rent A/C should have _______ balance (a) credit (b) Debit (c) both debit and credit (d) either debit or credits
- In adjusting for final account, accrued wages should have ______ balance (a) debit (b) credit (c) debit and credit (d) debit or credit
- Calculation of provisions for doubtful debts, depreciation, etc is done in step ____ in other to prepare P&L a/c and balance sheet from incomplete records (a) 1 (b) 2 (c) 5 (d) 6
1. List and explain the six steps necessary to prepare a P&L a/c and balance sheet from incomplete records.
2. Prepare debtors and creditors control accounts formats and highlight what each of them reveals.
GENERAL EVALUATION QUESTIONS
- State three characteristics of single entry accounting system
- List four disadvantages of single entry accounting system
- List five steps of converting single entry accounting system to double entry system
- Explain five differences between a trial balance and a balance sheet
- State eight items that will cause a disagreement between the Cash Book balance and the Bank Statement balance