Question

Explain how the following may be ascertained from incomplete records

(a) Opening capital and closing capital

(b) Credit sales and credit purchases

(c) Payments to creditors and collection from debtors

(d) Closing balance of cash

Answer 1

(a) Opening capital and closing capital:
Opening capital can be ascertained by preparing the statement of affairs at the beginning of the year and to ascertain the closing capital we can prepare the statement of affairs at the end of the year as follows

Statement of Affairs

as on...

$\begin{array}{cccc}CapitalandLiabilities& Amt.(Rs.)& Assets& Amt.(Rs.)\\ \text{Bills Payable}& \underset{–}{}& \text{Land and Building}& \underset{–}{}\\ \text{Creditors}& \underset{–}{}& \text{Plant and Machinery}& \underset{–}{}\\ \text{Outstanding Expenses}& \underset{–}{}& \text{Furniture}& \underset{–}{}\\ \text{Capital (Balancing Figure*)}& \underset{–}{}& \text{Stock}& \underset{–}{}\\ & & \text{Debtors}& \underset{–}{}\\ & & \text{Cash and Bank}& \underset{–}{}\\ & & \text{Prepaid Expenses}& \underset{–}{}\\ & & \text{Opening Capital}& \underset{–}{}\\ & & \text{(Balancing Figure, if any)}& \\ & \underset{–}{}& & \underset{–}{}\\ & -& & -\\ & \overline{}& & \overline{}\end{array}$

* When total of liabilities are more than total of assets, capital is shown in assets side and represents debit balance.

When the total of assets’ balance exceeds total of liabilities’ balance, capital is shown in the liabilities side.

(b) Credit sales and credit purchases:
Credit sales can be ascertained by preparing the Total Debtors Account whereas total credit purchase can be ascertained thorugh Creditors Account.They are prepared as follows:

$Dr.TotalDebto{r}^{\prime }sAccountCr.$

$\begin{array}{cccccc}Paticulars& J.F.& Amt.(Rs.)& Particulars& J.F.& Amt.(Rs.)\\ \text{Balance b/d}& & \underset{–}{}& \text{Cash}& & \underset{–}{}\\ \text{Bills Receivable}& & \underset{–}{}& \text{Bank}& & \underset{–}{}\\ \text{(Bill Dishonoured)}& & & \text{Discount Allowed}& & \underset{–}{}\\ \text{Bank(Cheque}& & & \text{Bad Debts}& & \underset{–}{}\\ \text{Dishonoured)}& & \underset{–}{}& \text{Sales Returns}& & \underset{–}{}\\ \text{Credit Sales (Balancing}& & & \text{Bills Receivable}& & \\ \text{Figure)}& & \underset{–}{}& \text{(Bill Drawn)}& & \underset{–}{}\\ & & & \text{Balance c/d}& & \underset{–}{}\\ & & \underset{–}{}& & & \underset{–}{}\\ & & -& & & -\\ & & \overline{}& & & \overline{}\end{array}$

$DrTotalCredito{r}^{\prime }sAccountCr$

$\begin{array}{cccccc}Particulars& J.F.& Amt.(Rs.)& Particulars& J.F.& Amt.(Rs.)\\ \text{Cash}& & \underset{–}{}& \text{Balance b/d}& & \underset{–}{}\\ \text{Bank}& & \underset{–}{}& \text{Bank}& & \\ \text{Bills Payable}& & \underset{–}{}& \text{(Cheque Dishonoured)}& & \underset{–}{}\\ \text{Discount Received}& & \underset{–}{}& \text{Bills Payable (Bills}& & \\ \text{Purchase Return}& & \underset{–}{}& \text{Dishonoured)}& & \underset{–}{}\\ \text{Balance c/d}& & \underset{–}{}& \text{Credit Purchases}& & \underset{–}{}\\ & & & \text{(Balancing Figure)}& & \\ & & \underset{–}{}& & & \underset{–}{}\\ & & -& & & -\\ & & \overline{}& & & \overline{}\end{array}$

(c) Payments to Creditors and Collection from debtors:
Payments to the creditors is ascertained from the Total Creditors Account as a balancing figure and collection from debtors are ascertained from the Total Debtors Account as a balancing figure.

(d) Closing balance of Cash:
Closing balance of cash is ascertained from the Cash Book, which shows all receipts in the debit side and all payments in the credit side during an accounting year and the balancing figure of the cash book is the closing balance of cash.