Financial Statements
Incomplete Records
Questions present a business with missing or partial records — you must reconstruct figures using techniques such as the accounting equation, control accounts, mark-up and margin, and cash/bank summaries to arrive at a complete set of financial statements.
Always establish what you know and work methodically towards what is missing. Use the accounting equation (Capital = Assets − Liabilities) to find opening or closing capital. Use mark-up/margin relationships to find missing sales or cost of sales. A well-labelled working will earn method marks even if the final figure is wrong.
Key Concepts to Revise
Accounting Equation
Capital = Assets − Liabilities. Use opening and closing statements of affairs to find opening capital or to calculate profit (closing − opening capital + drawings).
Mark-up vs Margin
Mark-up is gross profit as % of cost. Margin is gross profit as % of sales. Use these to find missing sales, cost of sales, or inventory figures.
Cash & Bank Summary
Reconstruct a cash book from available information to find missing receipts or payments — total debits must equal total credits.
Reconstructing Ledgers
Use the SLCA or PLCA approach to find missing credit sales, purchases, or payments from debtors and creditors balances.