Incomplete Records Tools

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  • Tools used to calculate profit/loss
    • adjustment accounts
      • can be used to calculate missing credit sales and purchases figures
        • receivables at the end of  year + receipts from receivables - receivables at beginning of year = credit sales
        • payables at end of year + payments to payables - payables at beginning of year = credit purchases
      • can be used to calculate amounts to be posted to the income statement
        • INCOME
          • dr- bal b/d owed, income statement ?, bal c/d prepaid... bal b/d owed
            • cr- bal b/d prepaid, bank, bal c/d owed... bal b/d prepaid
        • ASSET
          • dr- bal b/d value, additions... bal b/d value
            • cr- disposals, depreciation (income statement) ?, bal c/d value
        • EXPENSE
          • dr- bal b/d prepaid, bank, bal c/d owed... bal b/d prepaid
            • cr- bal b/d owed, income statement ?, bal c/d prepaid... bal b/d owed
    • statement of affairs/net assets method
      • capital = assets - liabilities
        • NET ASSET METHOD   use the accounting equation to calculate opening and closing capital, and then Closing Capital - Opening Capital - Capital Introduced + Drawings = Profit/Loss
        • Statement of Affairs As At */*/*          create two columns: 1- for opening capital 1-for closing capital. create two rows: 1- for assets 1- liabilities
      • both of these methods can calculate capital and profit/loss
    • final accounts
      • to produce the final accounts follow the 4 steps:
        • 4. prepare the balance sheet
        • 1. identify the missing information
        • 3. prepare the income statement
        • 2. calculate the information through the net assets method or statement of affairs, the cashbook, the markup or margin, inventory reconciliation, and the adjustment accounts
    • cash book
      • can be used to calculate missing figures by balancing both sides of the cashbook and finding the difference between the balancing totals
    • markup and margin
      • can be used to calculate cost of sales, sales, gross profit, inventory, purchases, etc through the relationship between mar up which = 1/n - gross profit/cost of sales, and margin which = 1/n+1 - gross profit/sales
    • inventory reconciliation
      • can be used to calculate actual closing inventory for the end of the financial year after additional business transactions have occurred after the financial year end due to closing inventory valuation not being carried out on time
      • closing inventory valuation after year end + sales - purchases -sales returns + purchase returns = closing inventory valuation for year end

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