Accounts from Incomplete Records — Account STD 11 Commerce — Question

Ascertainment of Profit or Loss from Incomplete Records
Despite the records being incomplete, the businessman would like to know the trading results as also the financial position of his business at the end of a particular period. This is done by adopting one of the two methods mentioned below:

1. Statement of Affairs Method

According to this method, the profits are ascertained by comparing the capital at the end and capital at the beginning of the accounting period. If the capital at the end of an accounting period is more than that at the beginning (with the necessary adjustments), the difference is treated as profit. If, on the other hand, the capital at the end is less than that of beginning, the difference is treated as a loss.

2. Conversion into Double Entry Method

Or

Preparation of Trading and Profit & Loss A/c and Balance Sheet

If a businessman who keeps incomplete records, wants to ascertain the profit or loss by preparing Trading and Profit & Loss Account, it is essential for him to convert his incomplete records into Double Entry records. Following steps are necessary for such conversion:

1. Opening Statement of Affairs: First of all, a statement of affairs at the beginning should be prepared to calculate the capital at beginning of the year and the accounts for all items appearing in statement of affairs are opened in the ledger through "opening entries in the Journal.
2. Cash Book: As a second step, a Cash Book should be prepared and all accounts whether Personal, Real or Nominal, appearing either on the debit side or on the credit side of the Cash Book are opened in the ledger and posting is made in these accounts.
3. Subsidiary Books: After this, the subsidiary books should be checked and their totals should be posted to their respective Accounts. Also, the necessary posting should be made in Personal Accounts with the help of subsidiary books.
4. Other Accounts: There may be certain other transactions too, of which no record is kept in the books. All such transactions must be journalised and posted.
5. Final Accounts: Lastly, a Trial Balance is prepared with the help of ledger balances and Trading and Profit & Loss A/c and Balance Sheet are prepared on the basis of it.