Incomplete records - the control account method

Incomplete Records

One area students seem to have difficulty with is Incomplete Records.

What you need to remember that, for this part of your assessment, all you're doing is taking what you should already know and putting it to use.

For example, you may be given a scenario like this:

Ammar operates an incomplete system of accounting records for his business, from which the following information is available.

 

Day-book summaries for the year

	Net £	VAT £	Total £
Sales	125,000	25,000	150,000
Purchases	60,000	12,000	72,000

General expenses

Net	VAT	Total
3,917	783	4,700

 Required

(a)  Prepare the sales ledger control account for the year ended 31 October 20X2 and calculate the discounts allowed

(b) Prepare the rent account showing the rent for the year ended 31 October 20X2. Included in the rent paid during the year is £1,500 for the quarter ending 31 December 20X2.

(c)  Prepare the VAT account showing the closing balance.

(d) Prepare the payroll account showing the payroll expenses for the year.

Solution:

The way to tackle this type of task is to take each element of the task in turn. Don't try to rush in and try to solve the whole thing - you'll end up in an awful mess!

It's also good practice to tick off items as you use them - so, for example, if you were to take the bank opening balance to adjust it, you would tick of the Bank figure at the start of the period. This means that, when you come to drawing up the final accounts, you don't reuse something you've already used.

So, let's get started.

(a)  Prepare the sales ledger control account (SLCA) for the year ended 31 October 20X2 and calculate the discounts allowed.

 What you need to think of is 'where would I find information for this account?'

As I said before, you're not doing anything new, you're just taking something you already know to solve the problem. So, here we're asked to prepare the SLCA and calculate the discounts allowed. 

What does the information does the SLCA normally contain? Well, hopefully, your work at level 2 and in Accounts Preparation will help you here:

So, can we find any information to help us? Where would you look?

Balance b/d - you could find this on last year's financial statements (specifically the Trade receivables figure on the Statement of financial position)

Sales per sales day book - Sales Day Book

Dishonoured cheques - notified by your bank

Returns per returns day book - Sales Returns Day Book

Cash from debtors - Cash book (receipts)

Discounts allowed - Cash book (receipts)

Bad debts written off - Journals

Contra - Journals

So, let's see if we can out together the SLCA for Ammar:

Sales Ledger Control Account
Balance b/d  (from balances as at 31 October 20X1)	10,500	Bank  (from Bank summary)	142,800
Sales  (Gross figure from Sales day book)	150,000	Balance c/d  (from balances as at 31 October 20X2)	12,900
		Discounts allowed (This is the balancing figure)	4,800
	160,500		160,500

Now we've done that, let's look at the next part:

(b) Prepare the rent account showing the rent for the year ended 31 October 20X2. Included in the rent paid during the year is £1,500 for the quarter ending 31 December 20X2.

Again, you need to think, 'where can I find information about this account?'

Tasks like this often include prepayments and accruals so the opening and closing balances can provide information on Balances b/d & c/d.

The bank summary, bank statement or cash book can be used to find out what happened during the year (see my blog entry on accruals and prepayments.

Again, let's have a look at the solution:

Rent
Prepayment b/d  (from information given)	750	Prepayment c/d (This will be a current asset on this year's statement of financial position	1,000
Bank  (from Bank summary)	6,250	Transferred to Statement of profit or loss (SPL)	6,000
	7,000		7,000

(c)  Prepare the VAT account showing the closing balance.

As before, you need to think about what goes where in the VAT account. Remember, VAT always travels with the goods so, if your purchases figure is a debit then your VAT on Purchases must be a debit also. Also remember to use the bank as your anchor - payments made to HMRC are Credit Bank, Debit VAT.

Again, let's look at the completed VAT account:

VAT Control
Bank  (from the Bank summary)	11,025	b/d (remember VAT payable is a liability so must be credit balance b/d)	2,200
General Expenses (from the information in the table below the day books)	783	Sales  (from the day books)	25,000
Purchases  (from the day books)	12,000
Balance c/d (appears as a current liability on the statement of financial position at the end of the year)	3,392
	27,200		27,200

(d) Prepare the payroll account showing the payroll expenses for the year.

This element of the task is another accruals task:

Payroll
Bank (from the bank summary)	22,000	Accrual b/d (from the list of opening balances)	200
Accrual c/d (from the list of closing balances and will show as a current liability in the Statement of financial position at the end of the year)	320	SPL	22,120
	22,320		22,320

Hopefully, you can now see that just taking what you know, you can pull together the information you’ve been given to help you find missing figures. This part of the Level 3 Final Accounts for Sole Trader and Partnerships assessment is not as hard as you think – it’s more a case of taking time to think about where to find information.

I hope this blog entry has been useful for you.