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CA Foundation · Accounting · Accounts from Incomplete Records

Which of the following best describes how a Statement of Affairs, prepared by a trader who keeps incomplete records, differs from a Balance Sheet prepared under the double entry system?

A statement of affairs is prepared from incomplete records, often with some values estimated, and not from an agreed trial balance. The capital shown in it is only the balancing figure, being assets minus outside liabilities. A balance sheet, in contrast, is drawn from complete double-entry ledger balances.

  1. AIt is drawn up from estimated or remembered figures, and the capital is only a balancing figureCorrect
  2. BIt is prepared from a trial balance whose debit and credit totals have been agreed
  3. CIt shows only the fixed assets and long-term liabilities of the business
  4. DIt is prepared at the end of the year only after the Profit and Loss Account is closed

Explanation

Where records are incomplete, no reliable trial balance exists, so assets and liabilities are listed from physical verification, memory or documents. Capital is then derived as total assets minus outside liabilities. A trial balance is a feature of double entry, so the option based on it is wrong.

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