An incomplete record situation is whereby, the accounting system falls short of the double entry. This may be due to:
- Lack of records at all; or
- Insufficient records that will facilitate the preparation of final accounts.
Reasons for incomplete records:
- Managers or owners may not have the skills or expertise in preparing and maintaining an accounting system (records and procedures).
- It may not be economical for the business to maintain accounting records due to the volume or/and nature of transactions (small scale businesses)
- Records are destroyed (e.g. through fire), stolen or misplaced.
There are 4 main approaches in preparing final accounts where there are insufficient records.
- Estimating income from the net assets.
- Estimating income from the use of ratios.
- Use of a simple cashbook and bank statement.
- Use of control accounts.
N/B: approach number c and d are normally used together