Summary
Incomplete records involve calculating missing figures and preparing financial statements using control accounts and adjustments. Understanding mark-up, margin, and inventory turnover is crucial for solving these problems effectively.
- Control Accounts — specialized ledger accounts summarizing transactions with customers and suppliers. Example: Receivables and payables accounts.
- Mark-up — profit expressed as a percentage of cost. Example: If goods cost 100, the mark-up is 25%.
- Margin — profit expressed as a percentage of sales. Example: A 100 sales represents a 20% margin.
- Inventory Turnover — measures how often inventory is sold and replaced. Example: Cost of Sales ÷ Average Inventory.
Exam Tips
Key Definitions to Remember
- Control Accounts: Summarize transactions with customers and suppliers.
- Mark-up: Profit as a percentage of cost.
- Margin: Profit as a percentage of sales.
- Inventory Turnover: Cost of Sales ÷ Average Inventory.
Common Confusions
- Confusing mark-up with margin.
- Miscalculating inventory turnover by not averaging inventory.
Typical Exam Questions
- How do you calculate credit sales? Use the formula: Closing Receivables + Cash Received - Opening Receivables.
- What is the difference between mark-up and margin? Mark-up is based on cost, while margin is based on sales.
- How do you find missing inventory values? Use the inventory turnover formula: Cost of Sales ÷ Average Inventory.
What Examiners Usually Test
- Ability to calculate missing figures using control accounts.
- Understanding and application of mark-up and margin.
- Preparation of income statements and statements of financial position from incomplete records.