The compilation of these Accounts from Incomplete Records Notes makes students exam preparation simpler and organised.
Meaning of Incomplete Records, Reasons for Incompleteness and Its Limitations
There can be two ways of maintaining the accounting records, one is the double-entry system and another is the single entry system. The records maintained according to the single entry system are known as Incomplete Records. Usually, small firms like grocery shops, general stores, food joints, etc. keep their books on the single entry system.
Meaning of Incomplete Records
In the Double entry system we keep the books on the basis of the Dual Aspect Concept i.e. every debit has a respective credit. The firms that do not keep their accounting books as per this system follow the single entry system. Under the single entry system, a firm maintains only cash account and the accounts of the debtors and the creditors properly.
It does not maintain the accounts of expenses, incomes, assets, and liabilities properly. Hence, as the information provided by these records is incomplete, they are known as Incomplete Records.
Reasons for Incompleteness
The proprietor may keep the accounting records on the basis of a single entry due to the following reasons:
- He has no knowledge or lack of knowledge about the accounting principles and concepts.
- The double entry system is comparatively an expensive way of maintaining financial accounts. The accountants may charge a handsome amount as fees.
- Maintaining incomplete records consumes less time.
- It is more convenient to maintain records as per the single entry system.
Limitations of Incomplete Records
Though maintaining Incomplete Records is easier but it is not a systematic method of maintaining accounts. Its limitations are as follows:
- We cannot prepare a Trial Balance to ensure the accuracy of the accounts in the absence of the double-entry system.
- It fails to ascertain the accurate financial results of the organization.
- Investigation and examination of profitability, solvency, and liquidity are difficult. Hence, outsiders and banks may not lend money for the expansion of the business.
- In case of loss by fire or theft claiming the insurance amount causes great difficulty due to incomplete records and missing information.
- Also, convincing the income tax authorities about the computed income is difficult in the absence of proper accounting.
Enumerate the features of Incomplete Records or Single Entry System?
Small-sized organizations may not be able to keep their books as per the double-entry system due to a lack of resources. However, sometimes it may so happen that the large-scale organization also renders incomplete records. This may be due to the destruction of the records due to fire, natural calamity or theft, etc. Its features are:
- It is an unsystematic manner of recording financial transactions.
- Under this method, only cash accounts and the personal accounts of debtors and creditors are maintained properly. The debtors and creditors may be for goods or assets.
- The owner may also record his personal transactions in the Cashbook, which we need to bifurcate.
- These accounting records are not comparable due to the lack of uniformity and their incompleteness.
- Here, the dependence on the original voucher and bills is high. As we need to collect all other information and figures from these original documents only.
- Under this system, it is difficult to ascertain the profit and loss for the year accurately due to the incompleteness of the records. Also, the Balance Sheet may not depict the true financial position.