In an ideal world, all necessary documents relating to accounts would be neatly filed away, so that they are easy to process and refer back to.
But this is not always the case, and sometimes when completing a set of accounts you won’t have all the documentation you need. These are known as incomplete records, and can sometimes be referred as ‘black bag jobs’, as clients might drop records off in a plastic bag, rather than in files.
Three methods for working with incomplete records
If all the records have not been made available, the first thing to do is to try and get the records from the client. The more records you have, the more accurate the accounts are. If you are not able to get everything, the accounts still need to be complete, and you’ll need to complete them using incomplete record techniques. Here are three methods for preparing accounts from incomplete records.
1. The accounting equation
If the client is unable to give you the value of capital, but you have all the details for the assets and liabilities, then you can use the accounting equation to work out the value of capital. Assets minus liabilities will equal capital.
Three things all accountants should know
Watch the expert webinar with AAT qualified accounting tutor Patricia Barlow
2. Control accounts
If you have missing balances on accounts, you can use the control accounts method. This involves completing the control account, such as the bank control account, with all the details you have. The account will not balance as it is missing information, and the balancing figure will be assumed to be the missing balance.
For example, if you have all of the figures apart from the sales credits figure, then you can use the sales ledger control account to work it out. To do this, you can enter the opening balance, the sales invoice value, the sales receipts value, and the closing balance. The difference between the debits and credit will be the sales credit notes that we do not have the information for.
3. Markup or margin method
If you have the sales figure and need to know the figure for the cost of goods sold (what it costs you to produce or buy a product), you can use the markup or margin method to work it out. For this, you will need to know what the markup or margin percentage is.
For example, if you have the sales figure of say £450,000 and the margin is 30%, you know that the cost of goods sold will be 70%. To work this out, you divide £450,000 by 100 and then multiply by 70, leaving you with the cost of goods sold figure of £315,000.
These methods often come in handy for working with incomplete accounts. However, they are not as accurate as completing the accounts using all of the correct information, so it’s important to get as much of the necessary documentation from a client as possible.
If you’re looking to develop a deeper knowledge of accounting practices, talk to us about enrolling on one of our popular courses. We offer qualifications that give you the skills and expertise you need to excel in your career.