Statement of Affairs · Reconstructing Missing Figures · Mark-up and Margin · Cash and Bank Reconstructions · Control Accounts | Cambridge A Level Accounting 9706
Many small businesses — sole traders, small partnerships, market traders — do not keep a full double entry bookkeeping system. They may keep only a cash book, some invoices and bank statements. When an accountant needs to prepare financial statements from this limited information, the process is called working from incomplete records.
| Situation | What is Missing | Technique Used |
|---|---|---|
| Business keeps only a cash book | Accruals, prepayments, credit transactions | Reconstruct totals using opening/closing balances |
| Owner cannot find purchase or sales records | Total purchases or total sales | Use mark-up or margin plus known cost of sales components |
| No receivables or payables records | Credit sales or credit purchases totals | Reconstruct using trade receivables/payables control accounts |
| Cash stolen or lost | Missing cash — theft or unexplained deficit | Reconstruct cash account — balancing figure = theft/loss |
| Business just started — no prior accounts | Opening capital | Statement of Affairs — list all assets and liabilities |
A Statement of Affairs is used to calculate capital when no formal capital account exists. It lists all known assets and liabilities — the difference is the owner's capital (net assets = capital from the accounting equation).
Ahmad runs a small grocery store. He has no formal accounting records. The following information is available:
| Item | 1 Jan 2026 ($) | 31 Dec 2026 ($) |
|---|---|---|
| Premises (NBV) | 80,000 | 76,000 |
| Equipment (NBV) | 12,000 | 9,000 |
| Inventory | 8,500 | 9,200 |
| Trade Receivables | 3,200 | 4,100 |
| Bank | 2,800 | 4,600 |
| Trade Payables | 4,500 | 5,800 |
| Loan | 20,000 | 16,000 |
| Accruals | 600 | 800 |
Ahmad withdrew $18,000 during the year for personal use. He introduced additional capital of $5,000 in March 2026.
When sales or purchases records are missing, the relationship between cost of sales and selling price can be used to reconstruct the missing figure. This relationship is expressed as either a mark-up or a gross profit margin.
Mark-up = Gross Profit ÷ Cost of Sales × 100
GP expressed as a % of COST
A mark-up of 25% means: for every $100 of cost, the business
adds $25 to arrive at the selling price of $125.
If mark-up = 25%: Selling price = Cost × 125/100
Cost = Selling price × 100/125
Margin = Gross Profit ÷ Revenue × 100
GP expressed as a % of SELLING PRICE
A margin of 20% means: for every $100 of sales revenue, $20
is gross profit and $80 is cost of sales.
If margin = 20%: Cost of Sales = Revenue × 80/100
Revenue = Cost of Sales × 100/80
Bilal's Bakery has the following information for 2026:
Opening inventory: $4,000 | Closing inventory: $5,500
Purchases: $62,000 | Mark-up on cost: 40%
Step 1 — Calculate Cost of Sales:
Cost of Sales = Opening inventory + Purchases − Closing inventory
= $4,000 + $62,000 − $5,500 = $60,500
Step 2 — Calculate Sales using mark-up:
Sales = Cost of Sales × (100 + 40) ÷ 100
= $60,500 × 140/100 = $84,700
Step 3 — Verify Gross Profit:
GP = $84,700 − $60,500 = $24,200
GP as % of cost = $24,200 ÷ $60,500 × 100 = 40% ✓
Sara's Clothing Shop: Sales = $120,000 |
Gross profit margin = 30%
Opening inventory = $8,000 | Closing inventory = $10,500
Step 1 — Calculate Cost of Sales using margin:
Cost of Sales = $120,000 × (100 − 30)/100 = $120,000 × 70%
= $84,000
Step 2 — Calculate Purchases:
Purchases = Cost of Sales − Opening inventory + Closing inventory
= $84,000 − $8,000 + $10,500 = $86,500
Gross Profit check: $120,000 − $84,000 = $36,000 = 30% of $120,000 ✓
When a business has only a cash book or bank statements, missing figures — such as total cash sales, total payments to suppliers, or cash stolen — can be found by reconstructing the cash or bank account as a T-account. The balancing figure is the missing item.
A trader's cash records show:
Opening cash balance: $1,200
Cash received from debtors: $28,000
Cash sales: unknown
Cash paid to creditors: $32,500
Cash expenses paid: $8,400
Drawings: $6,000
Closing cash balance: $2,800
| Details | $ |
|---|---|
| Balance b/d | 1,200 |
| Receipts from debtors | 28,000 |
| Cash sales (balancing figure) | 20,500 |
| Total | 49,700 |
| Details | $ |
|---|---|
| Paid to creditors | 32,500 |
| Cash expenses | 8,400 |
| Drawings | 6,000 |
| Balance c/d | 2,800 |
| Total | 49,700 |
Trade Receivables and Trade Payables control accounts are powerful tools for finding missing figures in incomplete records. The structure of each account is fixed — if all but one figure is known, the missing figure can be calculated as the balancing figure.
DR side: Balance b/d + Credit sales
CR side: Cash received + Discounts allowed + Returns inwards + Bad debts + Balance c/d
Missing credit sales = CR total − Balance b/d
DR side: Cash paid + Discounts received + Returns outwards + Balance c/d
CR side: Balance b/d + Credit purchases
Missing credit purchases = DR total − Balance b/d
The following information relates to the year ended 31 March 2026:
Opening Trade Receivables: $14,500
Cash received from customers: $85,000
Discounts allowed: $1,200
Bad debts written off: $800
Closing Trade Receivables: $16,900
Credit sales: unknown
| Details | $ |
|---|---|
| Balance b/d | 14,500 |
| Credit sales (balancing fig.) | 89,400 |
| Total | 103,900 |
| Details | $ |
|---|---|
| Cash received | 85,000 |
| Discounts allowed | 1,200 |
| Bad debts written off | 800 |
| Balance c/d | 16,900 |
| Total | 103,900 |
A common incomplete records scenario involves suspected theft or an unexplained cash shortage. The approach is to reconstruct what the cash balance should be, then compare it with what the cash balance actually is. Any difference is the amount stolen or missing.
Omar's Corner Shop. The following is known for March 2026:
Opening cash: $850 |
Cash sales (from mark-up): $24,000
Cash received from debtors: $6,500
Cash paid to suppliers: $18,200
Cash expenses: $3,400 |
Drawings: $2,000
Actual closing cash balance: $1,950
Expected closing balance:
$850 + $24,000 + $6,500 − $18,200 − $3,400 − $2,000 = $7,750
Actual closing balance: $1,950
Cash stolen: $7,750 − $1,950 = $5,800
Fatima runs a boutique. She has no formal accounts. The following information is available for the year ended 31 December 2026:
| Item | 1 Jan 2026 ($) | 31 Dec 2026 ($) |
|---|---|---|
| Fixtures (NBV) | 18,000 | 15,000 |
| Inventory | 12,500 | 14,000 |
| Trade Receivables | 6,800 | 7,400 |
| Bank | 3,200 | 4,900 |
| Trade Payables | 8,500 | 9,200 |
| Accrued expenses | 400 | 600 |
| Prepaid expenses | 300 | 200 |
Additional information:
Bank receipts from customers: $92,000 | Cash sales banked: $18,000
Bank payments to suppliers: $68,000 | Expenses paid: $14,000
Drawings: $22,000 | Gross profit margin: 35%
Step 1 — Find total sales using Trade Receivables control account:
Cash/bank received from customers = $92,000 + $18,000 = $110,000
Credit sales = Closing receivables + Cash received − Opening receivables
= $7,400 + $92,000 − $6,800 = $92,600 credit sales
Total sales = $92,600 + $18,000 = $110,600
Step 2 — Find Cost of Sales using margin (35%):
Cost of Sales = $110,600 × 65% = $71,890
Gross Profit = $110,600 × 35% = $38,710
Step 3 — Find total purchases:
Purchases = CoS − Opening inventory + Closing inventory
= $71,890 − $12,500 + $14,000 = $73,390
Step 4 — Find total expenses:
Expenses = Paid $14,000 + Accrual increase ($600 − $400) − Prepayment decrease ($300 − $200)
= $14,000 + $200 − $100 = $14,100
Plus depreciation: $18,000 − $15,000 = $3,000
Total expenses = $14,100 + $3,000 = $17,100
Profit = Closing Capital − Opening Capital + Drawings − New Capital Introduced
Think of it as: What the business would have ended with if the owner
had not taken money out or put money in. The owner's net contribution
(capital in − drawings) adjusts the capital change to reveal the
underlying profit.
Mark-up = GP ÷ Cost
(denominator starts with C, like Cost)
Margin = GP ÷ Sales
(denominator starts with S, like Sales)
If mark-up is 1/4 (25%): selling price = 5 parts, cost = 4 parts, GP = 1 part
Same ratio — margin = 1/5 = 20%
Question 1 Application — 4 marks Paper 1
A trader applies a mark-up of 33⅓% on all goods. Sales for the year were $120,000. Opening inventory was $9,000 and closing inventory was $11,400. Calculate the purchases for the year.
Mark-up = 33⅓% on cost
So GP/Sales ratio: Cost = 3 parts, GP = 1 part, Sales = 4 parts
Cost of Sales = $120,000 × 3/4 = $90,000
(1 mark)
Purchases:
CoS = Opening inventory + Purchases − Closing inventory
$90,000 = $9,000 + Purchases − $11,400
Purchases = $90,000 − $9,000 + $11,400 = $92,400
(3 marks)
Question 2 Application — 5 marks Paper 3
Hassan runs a hardware shop. The following information is available for the year ended 30 June 2026:
| Item | $ |
|---|---|
| Opening Trade Receivables | 8,400 |
| Closing Trade Receivables | 9,700 |
| Cash received from credit customers | 76,500 |
| Discounts allowed | 900 |
| Bad debts written off | 300 |
| Cash sales | 24,000 |
Calculate total sales for the year.
Step 1 — Reconstruct Trade Receivables Control Account:
CR side total = Cash received + Discounts + Bad debts + Closing balance
= $76,500 + $900 + $300 + $9,700 = $87,400
Credit sales = CR total − Opening balance
= $87,400 − $8,400 = $79,000
(3 marks)
Step 2 — Total sales:
= Credit sales + Cash sales = $79,000 + $24,000 = $103,000
(2 marks)
Question 3 Application — 4 marks Paper 3
Calculate the profit or loss from the following information using the capital comparison method:
| Item | $ |
|---|---|
| Opening capital (1 Jan 2026) | 45,000 |
| Closing capital (31 Dec 2026) | 52,000 |
| Drawings during the year | 28,000 |
| Additional capital introduced (July) | 8,000 |
Profit = Closing Capital − Opening Capital + Drawings − New Capital
= $52,000 − $45,000 + $28,000 − $8,000
= $27,000 profit (4 marks)
Question 4 Application — 4 marks Paper 1
A business expects its cash balance to be $3,400 based on reconstructed records. The actual cash balance is $1,100. The owner suspects cash has been stolen by an employee. Calculate the amount stolen and state how it should be treated in the Income Statement.
Cash stolen: $3,400 − $1,100 = $2,300 (2 marks)
Treatment in Income Statement: The $2,300 is recorded as an expense — "Cash stolen" or "Unexplained cash deficit" — charged in the Income Statement and reducing the profit for the year. It represents a loss to the business. (2 marks)
Question 5 Analysis — 3 marks Paper 1
Explain three reasons why a small business owner might not maintain a full double entry bookkeeping system, and state one risk arising from incomplete records.
Any three reasons (1 mark each):
Risk: Incomplete records make it difficult to detect errors or fraud (theft may go unnoticed), and the owner cannot assess the true profitability or financial position of the business without professional reconstruction. Tax returns may also be inaccurate, exposing the owner to penalties. (up to 1 mark for risk)