Theory question 101
Incomplete Records(a) What are incomplete records?
(b) Outline three limitations of keeping incomplete records.
(c) State three reasons a business keeps incomplete records.
Show the model answer
(a) Incomplete records (single entry): a system where the business does not keep a full set of double-entry records – usually only a cash book and some personal accounts.
(b) Any three: no trial balance to check arithmetical accuracy; errors and fraud are hard to detect; true profit or loss cannot be found exactly; financial position cannot be shown accurately; not acceptable for tax or bank loans; poor information for decisions and cost control.
(c) Any three: small size of the business; owner lacks accounting knowledge; cannot afford qualified accountants; double entry is costly and time-consuming; no legal requirement to keep full records; records lost or destroyed (fire, theft); desire to hide information (e.g. to avoid tax).
Define, then give three weaknesses and three reasons.