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Incomplete records

Edexcel IAL Accounting · WAC11 The Accounting System and Costing

Many small traders do not keep full double-entry records. The accountant rebuilds the missing figures from bank statements, invoices and the owner's knowledge to prepare the statements (spec 1.3.8).

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Profit from changes in capital

A statement of affairs lists assets and liabilities at a date; the difference is capital.

If only opening and closing statements of affairs are available:

Profit = closing capital - opening capital + drawings - capital introduced

Drawings are added back because they reduced capital without being a loss; capital introduced is removed because it increased capital without being profit.

Rebuilding sales and purchases

Use total trade receivables and total trade payables accounts (or the formula) to find credit sales and credit purchases as balancing figures:

Credit sales = receipts from customers + discount allowed + irrecoverable debts + closing receivables - opening receivables.
Credit purchases = payments to suppliers + discount received + closing payables - opening payables.

Add cash sales and cash purchases to get the totals.

Debit	£	Credit	£
Balance b/d	7,200	Bank	81,400
Credit sales (balancing figure)	83,900	Discount allowed	1,100
		Balance c/d	8,600
	91,100		91,100

Total trade receivables account

Margin and mark-up

Gross margin = gross profit / revenue x 100.
Mark-up = gross profit / cost of sales x 100.

If mark-up is 25%, cost is 100 and revenue 125, so margin = 25/125 = 20%. Use these to find a missing revenue or cost of sales:

Revenue = cost of sales x (100 + mark-up)/100.
Cost of sales = revenue x (100 - margin)/100.

Worked example

Assets at the start of the year were £58,000 and liabilities £13,500. Capital at the end is £52,300. Drawings were £18,000 and the owner introduced £5,000. Calculate profit.

Opening capital = 58,000 - 13,500 = 44,500.
Profit = 52,300 - 44,500 + 18,000 - 5,000 = 20,800.

Answer: Profit for the year £20,800.

Key idea: Profit = change in capital + drawings - capital introduced. Credit sales and purchases are balancing figures in total receivables and payables accounts. Mark-up is on cost; margin is on revenue.

Check yourself

Opening receivables £7,200; receipts from customers £81,400; discount allowed £1,100; closing receivables £8,600; cash sales £12,500. Calculate total revenue.
Show answer
£96400. Credit sales = 81,400 + 1,100 + 8,600 - 7,200 = 83,900; revenue = 83,900 + 12,500 = 96,400.
Opening payables £5,900; payments to suppliers £52,700; discount received £600; closing payables £6,400. Calculate credit purchases.
Show answer
£53800. 52,700 + 600 + 6,400 - 5,900 = 53,800.
Opening capital £31,000; closing capital £36,500; drawings £14,000; no capital introduced. Calculate profit.
Show answer
£19500. 36,500 - 31,000 + 14,000 = 19,500.
Cost of sales is £64,000 and goods are sold at a mark-up of 25%. Calculate revenue.
Show answer
£80000. 64,000 x 1.25 = 80,000.
Revenue is £90,000 and the gross margin is 30%. Calculate cost of sales.
Show answer
£63000. 90,000 x 70% = 63,000.
A business uses a mark-up of 60%. What is its gross margin, as a percentage?
Show answer
37.5 %. Cost 100, profit 60, revenue 160: margin = 60/160 = 37.50%.

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Sources

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.