14.3 Preparing financial statements from incomplete records

• Complete records use the double-entry bookkeeping system.


  True
• Preparing accurate financial statements from incomplete records is straightforward.

  False
• Match the type of information with its documentation:

  Sales ↔️ Sales invoices

  Purchases ↔️ Purchase invoices

  Cash Flows ↔️ Bank statements

  Assets & Liabilities ↔️ Loan agreements
• What are incomplete records in accounting?

  Missing key information
• Financial statements prepared from incomplete records are unreliable or missing
• What is the primary goal when preparing financial statements from incomplete records?

  Reconstruct missing information
• What evidence do accountants use to prepare financial statements from incomplete records?

  Supplementary documentation
• What types of documents are used to reconstruct missing sales information?

  Sales invoices and cash receipts
• What is the sales-to-purchases ratio used for?

  Estimating missing purchases
• Bank reconciliation is used to estimate missing cash receipts and payments
• Steps to construct a trial balance from incomplete records:

  1️⃣ Gather documentation

  2️⃣ Analyze information

  3️⃣ Estimate missing balances

  4️⃣ Compile trial balance
• What is a trial balance in accounting?

  List of debit and credits
• Steps to prepare the income statement from incomplete records

  1️⃣ Estimate Revenue/Sales

  2️⃣ Calculate Cost of Goods Sold

  3️⃣ Estimate Expenses
• What information is primarily used to estimate missing expenses in incomplete records?

  Bank statements and trends
• Incomplete records are missing key information such as sales, purchases, and cash receipts
• Match the document type with its use in reconstructing incomplete records:

  Sales Invoices ↔️ Reconstruct sales figures

  Purchase Invoices ↔️ Reconstruct purchase figures

  Bank Statements ↔️ Provide cash receipt information

  Cash Receipts ↔️ Supplement bank statements
• What does bank reconciliation help identify in incomplete records?

  Missing cash flows
• Steps to construct a trial balance from incomplete records

  1️⃣ Gather available records and documentation

  2️⃣ Estimate missing values

  3️⃣ Compile the trial balance
• Steps to construct a trial balance from incomplete records

  1️⃣ Gather available records and documentation

  2️⃣ Estimate missing values

  3️⃣ Compile the trial balance
• What is applied to the cost of goods sold to estimate sales using the markup percentage method?

  Markup percentage
• Match the estimation method with its description:

  Bank Reconciliation ↔️ Identify missing cash receipts and payments

  Markup Percentage ↔️ Apply markup to cost of goods sold

  Turnover Ratio ↔️ Use industry ratios for sales estimation
• Steps to prepare the income statement from incomplete records

  1️⃣ Estimate revenue/sales

  2️⃣ Calculate cost of goods sold

  3️⃣ Estimate expenses
• What ratio is used to calculate the cost of goods sold when preparing an income statement from incomplete records?

  Sales-to-purchases ratio
• In a complete income statement, what is the difference between gross profit and operating expenses?

  Net profit
• The balance sheet equation states that assets must equal liabilities plus equity.


  True
• What does the current ratio measure?

  Ability to cover current liabilities
• The gross profit margin measures the percentage of revenue that remains after deducting the cost of goods sold
• Incomplete records have reliable financial statements.

  False
• Order the methods used to estimate missing sales:

  1️⃣ Markup Percentage

  2️⃣ Turnover Ratio
• If sales are $13,000 and the sales-to-purchases ratio is 1.2, purchases can be estimated at $10,833.


  True
• How does budgeting help estimate missing cash flows?

  Forecasts based on trends
• Why is the trial balance a crucial step in preparing financial statements from incomplete records?

  Ensures accuracy
• The trial balance is a crucial step in preparing financial statements as it ensures the accuracy and completeness of accounting information
• A turnover ratio can be used to estimate sales based on the average customer balance.


  True
• Preparing an income statement from incomplete records requires estimation techniques to replace missing data.


  True
• What is a key characteristic of incomplete records regarding bookkeeping?

  Lack of double-entry
• The markup percentage method estimates sales by applying a percentage to the cost of goods sold.

  True
• The example given shows that a 30% markup on a cost of goods sold of $10,000 results in estimated sales of $13,000.


  True
• Which method is used to identify unrecorded transactions by comparing bank statements with cash books?

  Bank reconciliation
• Bank reconciliation is used to identify unrecorded transactions