Incomplete Records - Part 2

When the business only records cash received (not the invoices issued), total credit sales can be found by working BACKWARDS through the debtors control account.

Debtors (Trade Receivables) Control Account:

Dr	$	Cr	$
Opening balance (debtors)	X	Cash received from debtors	X
Credit sales (balancing figure)	?	Discount allowed	X
		Returns inwards	X
		Irrecoverable debts	X
		Closing balance (debtors)	X

Formula: Credit sales = Cash received + Discount allowed + Returns inwards + Bad debts written off + Closing debtors − Opening debtors

Example: Opening debtors $8,400; Cash received from debtors $54,200; Discount allowed $600; Returns inwards $300; Closing debtors $9,100. Credit sales = $54,200 + $600 + $300 + $9,100 − $8,400 = $55,800

Total sales = Cash sales + Credit sales

Cambridge exam tip: In these questions you are almost always given the closing and opening debtor balances and the cash receipts from debtors. The credit sales is the missing (balancing) Dr side figure.

The same logic applies to finding credit purchases — work through the total creditors control account.

Creditors (Trade Payables) Control Account:

Dr	$	Cr	$
Cash paid to suppliers	X	Opening balance (creditors)	X
Discount received	X	Credit purchases (balancing figure)	?
Returns outwards	X
Closing balance (creditors)	X

Formula: Credit purchases = Cash paid + Discount received + Returns outwards + Closing creditors − Opening creditors

Example: Opening creditors $6,200; Cash paid to suppliers $38,500; Discount received $450; Returns outwards $250; Closing creditors $7,100. Credit purchases = $38,500 + $450 + $250 + $7,100 − $6,200 = $40,100

Total purchases = Cash purchases + Credit purchases

Once both total sales and total purchases are found, proceed to prepare the income statement in the normal way. Use mark-up/margin to verify (cross-check) the gross profit if a percentage was given.

After reconstructing sales and purchases, the income statement and SFP are prepared using the same format as a complete records business.

Step-by-step approach:

Step 1: Reconstruct totals

• Total sales = cash sales + credit sales (from debtors control)
• Total purchases = cash purchases + credit purchases (from creditors control)

Step 2: Calculate cost of sales Opening inventory + Total purchases − Closing inventory = Cost of sales

Step 3: Income statement Revenue (total sales) − Cost of sales = Gross profit Gross profit − Expenses (adjusted for accruals/prepayments) = Net profit

Step 4: Statement of financial position Use the CLOSING balances of all assets and liabilities (reconstructed or given).

Step 5: Cross-check Opening capital + Net profit − Drawings = Closing capital Closing capital MUST equal Net assets on the SFP.

Accruals and prepayments still apply even in incomplete records. If rent is $1,200/year and $900 was paid, there is an accrual of $300:

• Rent expense in income statement = $1,200 (not $900)
• Accrued rent $300 = current liability on SFP

Cambridge exam tip: The cross-check at step 5 is your verification. If closing capital from the SFP does NOT equal opening capital + profit − drawings, you have an error. Re-check your reconstructed figures.