BAFS Study Notes: The Detective Work of Incomplete Records

Hello future accountants and business leaders! Welcome to one of the most practical topics in accounting: Incomplete Records.

Ever wondered how a small local shop, a family-run cha chaan teng, or a student club keeps track of its money without a fancy accounting system? Often, they use a simpler method, which can lead to incomplete records. In this chapter, you'll learn how to be an 'accounting detective' 🕵️‍♀️. We'll take messy, partial information and use our skills to figure out a business's profit or loss and create a proper set of financial statements. It's a powerful skill that shows you really understand how accounting works from the ground up. Let's get started!


1. What Are Incomplete Records?

Imagine a business owner who just keeps a simple cash book, a pile of receipts, and a list of who owes them money. They don't use the full double-entry system where every transaction has a debit and a credit. This is what we call incomplete records or single-entry accounting.

It's not 'wrong', especially for very small businesses, but it means important information like total sales, total purchases, or even the exact profit is missing. Our job is to find that missing information!

Quick Review: Double-entry vs. Incomplete Records

• Double-entry system: The gold standard! Every transaction affects at least two accounts (Dr/Cr). It's self-checking and produces a trial balance.

• Incomplete records: A simpler system. Often focuses on just cash and personal accounts (debtors/creditors). There's no trial balance to check for accuracy.

Key Takeaway

Incomplete records are just what they sound like – a partial set of accounting data. We need to use specific techniques to fill in the gaps and find the profit or loss.


2. Method 1: Finding Profit by Comparing Capital

This is the most direct way to find profit when records are incomplete. Don't worry if this seems tricky at first; the logic is very simple once you get it!

The Core Idea: The Piggy Bank Analogy

Imagine your piggy bank. How do you know how much your savings grew?
You check the money at the start of the month, and then at the end of the month. The increase is your savings, right?

Business is similar. Profit is simply the increase in the owner's investment (capital) over a period.

However, we need to adjust for two things:

• Drawings: Money or goods the owner took out for personal use. (This is like you taking money from your piggy bank for snacks. You still saved it, you just spent it. So we must add it back to see the true growth!)

• Capital Introduced: Extra money the owner put into the business. (This is like your parents giving you extra pocket money. It didn't come from your own savings, so we must subtract it to find the real growth.)

The Magic Formula for Profit

The formula to calculate profit or loss is fundamental. Memorise it!

$$ \text{Profit (or Loss)} = \text{Closing Capital} - \text{Opening Capital} + \text{Drawings} - \text{Capital Introduced} $$

The Tool: The Statement of Affairs

But wait... how do we find the 'Opening Capital' and 'Closing Capital'? We use a special tool called a Statement of Affairs.

A Statement of Affairs is just a simple version of a Statement of Financial Position (Balance Sheet). Its only job is to calculate the missing capital figure using the accounting equation.

$$ \text{Capital} = \text{Assets} - \text{Liabilities} $$

Step-by-Step Guide to Calculating Profit

Step 1: Find the Opening Capital.
Prepare a Statement of Affairs using the asset and liability figures from the beginning of the year. The balancing figure is your Opening Capital.

Step 2: Find the Closing Capital.
Prepare another Statement of Affairs using the asset and liability figures from the end of the year. The balancing figure is your Closing Capital.

Step 3: Find Drawings and Capital Introduced.
This information is usually given in the question.

Step 4: Use the Magic Formula!
Plug the four figures you found into the profit formula to get your final answer.

A Simple Example

Mr. Chan's records show the following:

Assets & Liabilities
Inventory
Trade Receivables
Bank
Trade Payables

At 1 Jan 2023
$10,000
$5,000
$8,000
$6,000

At 31 Dec 2023
$12,000
$7,000
$11,000
$8,000

During the year, Mr. Chan took drawings of $3,000 and introduced new capital of $2,000.

Step 1: Calculate Opening Capital (as at 1 Jan)
Assets = $10,000 + $5,000 + $8,000 = $23,000
Liabilities = $6,000
Opening Capital = $23,000 - $6,000 = $17,000

Step 2: Calculate Closing Capital (as at 31 Dec)
Assets = $12,000 + $7,000 + $11,000 = $30,000
Liabilities = $8,000
Closing Capital = $30,000 - $8,000 = $22,000

Step 3 & 4: Calculate Profit
Profit = Closing Capital ($22,000) - Opening Capital ($17,000) + Drawings ($3,000) - Capital Introduced ($2,000)
Profit = $5,000 + $3,000 - $2,000
Profit for the year = $6,000

Common Mistakes to Avoid

• Forgetting to ADD drawings back. Remember, it's money the business earned before the owner took it.

• Forgetting to SUBTRACT new capital. This is not profit; it's just extra investment.

• Mixing up the signs (+/-). Just think of the piggy bank analogy to keep it straight!

Key Takeaway

To find profit from incomplete records, find the capital at the start and end of the period using a Statement of Affairs, then adjust for drawings and new capital.


3. Preparing Full Financial Statements

Sometimes, we need to do more than just find the profit. We need to prepare a proper Income Statement and Statement of Financial Position. To do this, we need to find more missing pieces of the puzzle, like total sales and total purchases.

This is where your detective skills really shine!

Finding Missing Cash or Bank Figures

Often, the cash or bank balance is missing, or we need to find a figure like total cash paid for expenses. We can reconstruct this by preparing a Cash and Bank Summary (or a T-account).

How it works:
1. Start with the opening cash/bank balance.
2. ADD all money received (receipts) - e.g., cash sales, money from receivables.
3. SUBTRACT all money paid out (payments) - e.g., cash purchases, payments to payables, expenses paid.
4. The final figure is the closing cash/bank balance.

Tip: If the question gives you the opening and closing bank balances, you can use this summary to find a missing receipt or payment figure (like drawings).

Finding Credit Sales using a Control Account

To prepare an Income Statement, we need the Total Sales figure. The business owner might know their cash sales, but what about sales made on credit?

We use a Total Trade Receivables Control Account to find the missing credit sales figure.

Total Trade Receivables Control Account

Think of this as a summary of everything that happened with all customers who owe the business money.

What increases the total amount owed to us?
• The opening balance (what they owed at the start).
• Credit Sales (This is usually the figure we are looking for!)

What decreases the total amount owed to us?
• Cash/cheques received from them.
• Sales returns.
• Bad debts written off.
• Discounts allowed.

The closing balance is what they still owe at the end.

Formula version:
Closing Balance = Opening Balance + Credit Sales - Receipts from Receivables - ... other decreases

Finding Credit Purchases using a Control Account

Similarly, we need Total Purchases. We find the missing credit purchases figure using a Total Trade Payables Control Account.

Total Trade Payables Control Account

This is a summary of everything related to suppliers the business owes money to.

What increases the total amount we owe?
• The opening balance (what we owed at the start).
• Credit Purchases (This is usually the figure we are looking for!)

What decreases the total amount we owe?
• Cash/cheques we paid to them.
• Purchase returns.
• Discounts received.

The closing balance is what we still owe at the end.

Formula version:
Closing Balance = Opening Balance + Credit Purchases - Payments to Payables - ... other decreases

Did you know?

Control accounts are not just for incomplete records! Large companies use them in their double-entry systems to check that the detailed records (the sales ledger and purchases ledger) are correct. Here, we are using them as a tool to find a single missing number.

Putting It All Together: The Grand Finale

Once you have found all the missing figures, you can prepare the final accounts.

Step 1: Calculate Missing Figures.
• Use control accounts to find credit sales and credit purchases.
• Use a cash summary to find the closing bank/cash balance or another missing item like drawings or expenses paid.

Step 2: Calculate Total Sales and Purchases.
• Total Sales = Cash Sales + Credit Sales
• Total Purchases = Cash Purchases + Credit Purchases

Step 3: Prepare the Income Statement.
• Start with your calculated Total Sales.
• Calculate Cost of Goods Sold (Opening Inventory + Total Purchases – Closing Inventory).
• Subtract all other expenses for the period (e.g., rent, wages, depreciation). The information for these will be given. Be careful to use the expense for the period, not just the cash paid for it!

Step 4: Prepare the Statement of Financial Position.
• Use all the asset and liability figures from the END of the period.
• The capital section will be: Opening Capital + Net Profit (from your Income Statement) – Drawings.
• The final capital figure should make the Statement of Financial Position balance! This is a great way to check if your calculations were correct.

Key Takeaway

Preparing full financial statements is a step-by-step process. The key is to use control accounts and cash summaries to find the missing sales, purchases, and cash figures first. Then, you can build the Income Statement and Statement of Financial Position just like you would in any other accounting problem.


You've got this! Working with incomplete records can seem like a lot of steps, but it's very logical. Practice is the key. Every problem you solve will make you a more confident 'accounting detective'! Good luck!