Question

estion 1 Describe four demerits of incomplete records. (4 marks) (b) Becky, a sole trader, does not keep proper books of accounts. From your investigati discovered that she kept a small notebook into which she recorded all cash receipts payments for the year ended 31 March 2022. Receipts Cash in hand Sales Trade receivables Capital introduced Receipts and Payments Account GHe Payments 0 Shop premises Shop fittings Inventory Trade receivables Trade payables Rent prepaid Electricity bill outstanding 11,500 Rent 62,000 Communication expenses 32,500 Electricity 15,000 Purchases Trade payables 121,000 Insurance Drawings Sundry expenses Shop fittings Cash in hand Her assets and liabilities at the beginning and at the end of the year were a- 31/03/2022 31/03/ GH¢ 205,000 33,500 65,500 13,000 5,500 1,800 300 GH 225. 26 60 Discount received and discount allowed were GH¢800 and GH¢1,C Cost of goods returned by trade debtors were GH¢1,500. Cost of goods returned to trade creditors amounted to GH¢1,200. Capital introduced during the year amounted to GH¢15,000. re required to prepare: Statements of affairs as at 31 March 2021 and 31 March 2022 [8 ma A statement of profit or loss for the year ended 31 March 2022. [8 n [Total​

Answer 1

(a) Demerits of incomplete records:

1. Incomplete records make it difficult to track the financial performance of a business accurately, which can lead to poor decision-making.

2. It becomes challenging to prepare financial statements such as the income statement, balance sheet, and cash flow statement, making it difficult to assess the financial health of the business.

3. Incomplete records can lead to errors and inaccuracies in tax filings, which can result in penalties or legal issues.

4. It becomes difficult to identify fraudulent activities such as embezzlement, theft, or financial mismanagement, leading to financial losses.

(b) Based on the information provided, the following statements and calculations can be prepared:

Statement of Affairs as at 31 March 2021:

Assets:

Cash in hand: GH¢ 300

Trade receivables: GH¢ 5,500

Inventory: GH¢ 13,000

Shop fittings: GH¢ 33,500

Total assets: GH¢ 52,300

Liabilities:

Trade payables: GH¢ 1,21,000

Rent prepaid: GH¢ 11,500

Electricity bill outstanding: GH¢ 0

Total liabilities: GH¢ 1,32,500

Capital: GH¢ 2,05,000

Statement of Affairs as at 31 March 2022:

Assets:

Cash in hand: GH¢ 1,800

Trade receivables: GH¢ 65,500

Inventory: GH¢ 33,500

Shop fittings: GH¢ 33,500

Total assets: GH¢ 1,34,300

Liabilities:

Trade payables: GH¢ 0

Rent prepaid: GH¢ 0

Electricity bill outstanding: GH¢ 15,000

Total liabilities: GH¢ 15,000

Capital: GH¢ 2,25,300

Statement of Profit or Loss for the year ended 31 March 2022:

Cash receipts: GH¢ 2,05,000

Capital introduced: GH¢ 15,000

Total income: GH¢ 2,20,000

Expenses:

Purchases: GH¢ 1,21,000

Rent: GH¢ 62,000

Communication expenses: GH¢ 32,500

Electricity: GH¢ 15,000

Sundry expenses: GH¢ 1,800

Drawings: GH¢ 60

Cost of goods returned to trade creditors: GH¢ 1,200

Total expenses: GH¢ 2,32,760

Net loss: GH¢ 12,760

Hope this helps!