Accounts from Incomplete Records class 11 Notes Accountancy

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CBSE Guide Accounts from Incomplete Records class 11 Notes

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Accounts from Incomplete Records class 11 Notes Accountancy

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CHAPTER-10Accounts from Incomplete Records

class 11 Notes Accountancy Learning Objectives

After studying this lesson you will be able to:

· Define the concept of incomplete records.

· Distinguish between Double entry system and Accounts from Incomplete records.

· Ascertain the amount of profit or loss using “Statement of Affairs” method.

· Differentiate between Balance Sheet and Statement of Affairs.

· Prepare Statement of Affairs using given data.

Suggested Methodology

· Illustration Method

· Discussion Method

Introduction:

Some small size business entities do not follow the double entry system of maintaining the accounting records some business entities maintains books of accounts under the system Accounting from Incomplete records. The system in which no set rules of double entry system are followed is called Accounts from Incomplete records.

Under this system only the following accounts are maintained:

· Cash book

· The personal A/C

· ome Real A/C according to need

Note: Nominal accounts are not maintained under this system.

Under this system of maintaining accounts:

· Both the aspects of only certain transactions are recorded e.g. cash

received from debtors or cash paid to creditors.

· One aspect of some transactions are recorded e.g. cash paid for purchase of goods.

· Some financial events are not recorded at all e.g. depreciation charged on fixed assets.

Points to Remember

· Accounting Principles and Accounting Standards are not followed properly under this system.

· Original vouchers provide base for preparing the accounts.

· This method is highly flexible because it can be adjusted according to the needs of the organisation.

· Profit or less is ascertained by either Statement of Affairs method or ‘Conversion into Double Entry System Method.’

Uses of Incomplete Records

Books according to this system can be maintained only by those small entities in the form of Sole Proprietorship or Partnership firms that are not bound to keep records of business transactions as per double entry system. Companies cannot maintain books under this system because of legal provisions.

Uses or Reasons for Keeping Incomplete Records

1. Simple Method: It is an easy and simple as under this method one does not require any special knowledge of the principles for recording of transactions.

2. Less Expensive: As under this method only few accounts are prepared therefore business firm does not require more statt for recording the transactions

3. Flexible Method: This method is highly flexible because it can be adjusted according to the needs of the organisation.

4. Suitable for Small Concerns: This method is most suitable to small business concerns which have mostly cash transactions and very few Assets & Liabilities

Limitations of Incomplete Records

1. Incomplete method: This method is incomplete method of maintaining the accounting records as the aspects, debit and credit, of every transaction are not recorded.

2. Arithmetical Accuracy cannot be checked: Under this system no real and nominal accounts are maintained. As such a trial balance cannot be prepared to check the arithmetical accuracy of the books of accounts.

3. True Profit or Loss cannot be ascertained: As under this system all the accounts are not prepared like Nominal A/C which is the base for calculating actual profit. So the profit ascertained under this method is not reliable.

4. True financial position of the business cannot be Judged: Since real accounts are not maintained, it is not possible to prepare a balance sheet showing the true financial position of the business

5. No recognition in the assessment of Income Tax & Sales Tax: The system fails to reveal the true profit and sales of a business. As such, the accounts maintained under the system are not accepted by Tax authorities.

Ascertainment of Profit or Loss

The main objective of any business enterprise is to earn profits In case of organizations maintaining accounts under incomplete records the amount of profit or loss can be ascertained by Statement of Affairs method or Net Worth method

Statement of Affairs Method

Under this method, profits or losses of the business are ascertained by comparing the Capital at the end, Capital at the beginning of the accounting period.

Note:

1.When Capital at the end is more than the capital in the beginning during an Accounting period

Profits = Closing Capital – Opening Capital

2. When Capital at the Beginning is more than capital at the end during an Accounting Period.

Losses = Opening Capital – Closing Capital

For ascertainment of profit or loss, the following steps shall be taken:

Step 1: Calculate the amount of ‘Opening capital’ (If not given in the Question) by preparing Statement of Affairs at the beginning of the accounting period.

Step 2: Calculate the amount of ‘Closing Capital’ by preparing ‘Statement of Affair’ at the end of the accounting period.

Step 3: Calculation of Profit or Loss by preparing Statement of Profit of Loss in the following manner

Statement of Profit or Loss for the year ended on ….

ParticularDetailsAmount
Closing CapitalXXXX
Add:- Drawing during the yearXXXX
Less:- Additional Capital introduced during the yearXXXX
XXXX
Adjusted Capital at the endXXXX
Less:- Opening CapitalXXXX
Profit or Loss for the yearXXXX

STATEMENT OF AFFAIRS

A Statement of affairs is a statement showing the balances of assets (including cash and bank balance) on the right hand side and the balance of liabilities on the left hand side, on a particulars date. The difference in the total of two sides is known as capital.

Capital = Total Assets – Total liabilities

A statement of affairs is very similar to Balance Sheet as prepared for the business entities maintaining accounts under double entry system, though it should not be described as a Balance Sheet.

A Statement of Affairs is prepared as follows:

Statement of Affairs

as at …………………………..

LiabilitiesAmountAssetsAmount
Bank overdraftXXXXCash in HandXXXX
Sundry CreditorsXXXXCash at BankXXXX
Bill PayableXXXXBills receivablesXXXX
Outstanding ExpensesXXXXSundry DebtorsXXXX
Income recd in advanceXXXXStockXXXX
Prepaid ExpensesXXXX
Capital (Balancing Figure)XXXXAccrued IncomeXXXX
XXXXXXXX

Accounts from Incomplete Records class 11 Notes

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CBSE Class-11 Revision Notes and Key Points

Accounts from Incomplete Records class 11 Notes Accountancy. CBSE quick revision note for class-11 Mathematics, Physics, Chemistry, Biology and other subject are very helpful to revise the whole syllabus during exam days. The revision notes covers all important formulas and concepts given in the chapter. Even if you wish to have an overview of a chapter, quick revision notes are here to do if for you. These notes will certainly save your time during stressful exam days.

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