Bookkeeping basics
Incomplete records
Find the unknown as the balancing figure in an account where everything else is known.
Draft: not yet reviewed by a teacher
Why it exists
Small traders often keep only a cash book, and records are lost in fires and floods. Financial statements are still needed for tax, the bank and the owner. Every account balances, so a single unknown in it can always be found.
Key rules
- The accounting equation: net assets = capital. Profit = increase in net assets − capital introduced + drawings.
- Credit sales from the receivables account: closing balance + cash received + debts written off + discounts allowed − opening balance.
- Credit purchases from the payables account: closing balance + cash paid + discounts received − opening balance.
- A cash summary: opening float + takings = cash banked + payments from the till + drawings + closing float; the unknown is the balancing figure.
- A mark-up is a percentage of cost: sales = cost × (1 + mark-up). A margin is a percentage of sales: cost of sales = sales × (1 − margin).
- Lost inventory: opening inventory + purchases − cost of sales (from the margin) = expected closing inventory; the loss = expected − actual.
Examples
Net assets 42,000 on 1 January and 57,500 on 31 December; drawings 18,000; the owner introduced 5,000.
- Increase in net assets: 57,500 − 42,000 = 15,500
- Profit: 15,500 − 5,000 + 18,000 = 28,500
Receivables: opening 6,200, closing 7,900; cash from customers 81,300; an irrecoverable debt of 600 written off.
- Credit sales: 7,900 + 81,300 + 600 − 6,200 = 83,600
Inventory burns. Opening 14,000, purchases 70,000, sales 88,000 at a 25% margin; goods worth 11,500 survive.
- Cost of sales: 88,000 × 75% = 66,000
- Expected closing inventory: 14,000 + 70,000 − 66,000 = 18,000
- Loss: 18,000 − 11,500 = 6,500
How it works
Every method is the same trick: put the known figures where double entry would put them and find the missing one as the balancing figure. In the receivables account the debits (opening balance and sales) equal the credits (cash, write-offs, closing balance). In a cash summary everything that came in equals everything that went out, plus the closing float.
Mark-up and margin convert through one table: cost 100, mark-up 25, sales 125, so the margin is 25/125 = 20%.