Page 8 - Chapter-11.pmd

444 Accountancy

Do It Yourself

Identify a small shopkeeper in your locality, ask him about the accounting
records maintained by him. If he is not maintaining the records as per
double entry system, list the reasons thereof and ask him how does he
compute profit or loss.

11.4 Preparing Trading and Profit and Loss Account and
the Balance Sheet
To prepare proper trading and profit and loss account and the balance sheet
one needs complete information regarding expenses, incomes, assets and
liabilities. In case of incomplete records, details of some items like creditors,
cash purchases, debtors, cash sales, other cash payments and such receipts
are easily available, but there are a number of items the details of which will
have to be ascertained in an indirect manner by using the logic of double
entry. The most common items that are missing and have to be worked out as
such are :
• Opening capital
• Credit purchases
• Credit sales
• Bills payable accepted
• Bills receivable received
• Payments to creditors
• Payments to debtors
• Any other cash/bank related items.
You know that opening capital can be worked out by preparing the
statement of affairs at the beginning of the year. For other items we have
explained as to how available information can be used to ascertain their missing
figures with the help of total debtors and total creditors, total bills receivable
and total bills payable accounts and summary of cash.

11.4.1 Ascertaining Credit Purchases
The credit purchases figure is not usually available from the incomplete records.
It is quite possible that some other information related to creditors may also
be missing. Therefore, by preparing the total creditors account, a proforma of
which is given in figure 11.4, credit purchases or any other missing figure related
to creditors, as the case may be, can be ascertained as the balancing figure.

2015-16