What is the primary purpose of preparing a memorandum trading account under incomplete records?
Correct answer: A. To determine gross profit or gross loss
- A. To determine gross profit or gross loss
- B. To calculate the owner’s drawings
- C. To calculate the closing bank balance
- D. To determine the amount of trade creditors
Explanation
A memorandum trading account uses available stock, purchases, sales, and gross profit information to find gross profit or gross loss. Drawings and bank balances belong to other accounting calculations, while creditors are usually established through a creditors account.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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More Incomplete Records questions
Under the conversion method of incomplete records, the accountant mainly reconstructs which set of accounts?
If closing stock is omitted from the calculation of profit, what is the likely effect?
A trader has opening stock of Rs. 40,000, cash purchases of Rs. 160,000, credit purchases of Rs. 240,000, closing stock of Rs. 50,000, and sales of Rs. 500,000. What is the gross profit?
A trader has cost of goods sold of Rs. 320,000 and applies a mark-up of 25% on cost. What are the sales?
The owner’s personal electricity bill of Rs. 9,000 is paid from business cash. How should this payment be treated?
Cash rent paid during the year is Rs. 72,000. Rent prepaid is Rs. 8,000 at the beginning and Rs. 11,000 at the end. What rent expense should be charged for the year?