What Are Incomplete Records?
Incomplete records is a way of keeping records that does not fully use the double-entry system. It is often called single entry because only one side of a transaction is recorded, or some entries are missing. Small businesses such as stalls and sundry shops usually keep records this way because the owner is not trained in accounting.
Key idea
Double entry records both the debit and the credit of every transaction; single entry records only part of it. Because of this, a trial balance cannot be prepared directly from incomplete records.
Why Do Records Become Incomplete?
- The owner has no accounting knowledge.
- To save the time and cost of hiring an accountant.
- Some documents or books are lost, destroyed or never kept.
Finding the Profit
Because the accounts are incomplete, profit cannot be taken straight from a profit and loss account. Two methods are used:
- Comparison method — comparing opening capital with closing capital.
- Analysis method — rebuilding the full accounts from the information available.
Example
Mr Rahim sells burgers at a stall. He only records cash in and cash out in a small notebook, with no proper debtors or creditors accounts. His records are incomplete records, and his profit must be estimated using one of the two methods above.
Advantages and Disadvantages
Incomplete records are simple and cheap to keep and suit a small business with few transactions. However, they have many weaknesses: the true profit is hard to determine, errors and fraud are hard to detect, a trial balance cannot be prepared to test accuracy, and the information is too incomplete for making decisions or applying for a bank loan.
For these reasons, as a business grows the owner is encouraged to move to a full double-entry system so that accurate financial statements can be prepared and the requirements of LHDN can be met.
Remember
Incomplete records = single entry. It is not an "error" but a simple way of keeping records that must be completed again in order to work out profit.