Accounts from Incomplete Records
"Finding profit when the books aren't perfect."
Small shopkeepers and businesses often don't maintain a full Double Entry System. They might just keep a Cash Book and a Personal Ledger. This is called Single Entry System or Incomplete Records.
There are two main methods to find profit in such cases:
- Statement of Affairs Method (Net Worth Method)
- Conversion Method (covered in next lesson)
Statement of Affairs Method
Concept: Profit is the increase in capital over a period, adjusted for drawings and fresh capital.
- If Capital at End > Capital at Beginning = Profit (usually)
Steps:
- Prepare Opening Statement of Affairs to find Opening Capital.
- Prepare Closing Statement of Affairs to find Closing Capital.
- Adjust for Drawings and Additional Capital to find Net Profit.
What is a Statement of Affairs?
It looks exactly like a Balance Sheet but is prepared from incomplete records.
- Left Side: Liabilities
- Right Side: Assets
- Balancing Figure: Capital
Why "Statement of Affairs" and not "Balance Sheet"? Because the values are estimates and not fully verified by double entry trial balance.
Statement of Profit or Loss (Format)
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Full Format to Memorize
| Particulars | Amount (₹) |
|---|---|
| Capital at the end of the year | XXXX |
| Add: Drawings during the year | XXX |
| Less: Additional Capital introduced | (XXX) |
| Adjusted Capital at the end | XXXX |
| Less: Capital at the beginning | (XXX) |
| Profit before Adjustments | XXXX |
| Less: Adjustments (Depreciation, Bad Debts, Interest on Capital) | (XXX) |
| Net Profit / Loss for the year | XXXX |
Dealing with Missing Figures
Often, you are not given Opening or Closing Capital directly. You must calculate them.
Comprehensive Example
Problem:
- Opening Capital: ₹1,00,000
- Closing Capital: ₹1,50,000
- Drawings: ₹20,000
- Additional Capital: ₹10,000
- Depreciation to be charged: ₹5,000
Solution:
Closing Capital 1,50,000
(+) Drawings +20,000
--------
1,70,000
(-) Additional Capital -10,000
--------
Adjusted Closing Capital 1,60,000
(-) Opening Capital -1,00,000
--------
Profit Before Interest 60,000
(-) Depreciation -5,000
--------
Net Profit 55,000
Comparison: Statement of Affairs vs Balance Sheet
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Quiz: Statement of Affairs
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