Observation

Majority of the candidates that attempted this question were confusing reasons for keeping incomplete records with its disadvantages. This reflected that they provided answers meant for part (a) which was on reasons incomplete records may be kept by the business entity for that of part (b) which was on disadvantages of incomplete records, while in part (c) of the question which was on steps of converting incomplete records accounts to double entry accounts, candidate performed poorly as they only had the idea of majorly one of the steps but they got all other points mixed up. Therefore candidates’ performance to question 2 was basically lack of their understanding to the principles of double entry.

Below are some of the suggested responses:

2(a)      Reasons for which Incomplete Records may be kept by a business entity:

1. It makes record keeping easy;
2. Lack of competent accounting personnel in a business;
3. Deliberate attempt on the part of the management of a business to understate profit or evade tax;
4. Where the owners of business do not trust the accounting staff;
5. It allows for easy determination of profits;
6. Where there is no legal obligation on the part of the business to maintain proper accounting records;
7. It is less cumbersome or more convenient to maintain;
8. It is cheaper to maintain when compared to maintaining double entry system;
9. Time consumption is minimal;
10. Deliberate attempt on the part of accounting personnel to conceal accounting records in order to avoid detection of malpractices;
11. Loss of vital documents as a result of burglary, fire outbreak, flood and other natural disasters;
12. When the business is new and had just begun operations;
13. When only few transactions are dealt with by the business;
14. Inability to employ qualified accounting staff due to the size of the business.

2(b)      Disadvantages of Incomplete Records:

1. It is unacceptable for tax purposes;
2. It is difficult to ascertain the accurate profit or loss for the year;
3. It provides avenue for fraud;
4. The records are not accurate;
5. It makes financial statements unreliable;
6. It could lead to wrong assessment of taxes;
7. There is the possibility of arbitrary spending leading to business collapse;
8. Fraud and dishonesty will not be easily detected or checked;
9. It makes it difficult to prepare financial statements;
10. It could lead to difficulty in planning business activities;
11. It could lead to inaccurate decisions;
12. It makes it difficult for business to obtain credit facilities;
13. It makes it difficult to detect errors;
14. It makes it difficult to control expenses;
15. It makes it difficult to assess insurance claims;
16. It makes it difficult to attract qualified accounting personnel;
17. It makes it expensive to prepare financial statements since experts may be engaged at additional costs.

 

2(c)Steps of Converting Incomplete Records or Single Entry Accounts to Double    
            Entry Accounts:

1. The preparation of a statement of affairs at the beginning of the year to ascertain the opening capital;
2. A cash book is prepared for all cash and bank transactions properly posted into it;
3. Open and post the items from the cash book into their respective accounts;
4. Prepare the sales ledger control account to ascertain credit sales;
5. Prepare the purchases ledger control account to ascertain credit purchases.
6. Open account for accruals;
7. Open account for prepayments.