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# System prepended metadata

title: L02_P03

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# L02_P03
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Many small businesses do not keep their accounts written up using double entry bookkeeping. 

Instead, they keep records of invoices sent and of cash that has come through their tills. They may have a stack of purchase receipts from large orders and/or a bag of small value receipts for ad hoc expenses. 

Even an organised small business may simply have spreadsheets listing incomings and outgoings as single entries rather than using double entry.

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New accounting software packages that link to bank accounts help improve record keeping as they record all the transactions that go through the bank into some T accounts. 


However, they are not foolproof and non bank transactions will still need to be entered manually.


The upshot of all this is that many small businesses have gaps in their record keeping. In other words, they keep incomplete records.


Organisations may have incomplete records for other reasons. It may be that information has been lost because of fire, water damage or theft of information from the organisation.

Other problems with accounting records are unresolved differences between:

asset registers and the actual assets held, 
control accounts and subsidiary ledgers, 
inventory records and actual inventory, and
the cash book and the bank statement

Of course, we should be doing regular reconciliations to ensure that any differences are quickly identified and resolved. However In reality, not all organisations carry out these reconciliations on a regular basis. 

Finally, timing differences between transactions taking place and payment being made can lead to significant differences between sets of records.


So, sometimes the accountant must turn detective in order to calculate profit and to complete a statement of financial position.  

Like any detective, the accountant has a range of tools available to help identify the missing information, but key to being good at dealing with incomplete records is having a thorough knowledge of accounting techniques. 

This includes knowing what should go into the various sections of the statement of financial position, and the elements that make up the various control accounts such as the sales, purchases, bank and VAT control accounts.





We will also use financial statements or trial balances from the end of the previous period, calculations of profit markups or margins on the cost price of goods that are sold by the business, and of course we can use the accounting equation.




Finally, standard accounting processes such as asset depreciation and disposal, and accounting for accruals and prepayments will be used to ensure that accounts are as accurate as possible.


In this lesson we will focus on how we use the four control accounts, 

and in the next lesson we will focus on how our knowledge of the financial statements helps us to identify missing figures.


Have a go at the questions below before moving on to watch the next video, which looks at rebuilding the sales and purchases ledger control accounts.


