Accounts for Incomplete Records

Meaning of Incomplete Records

The books of account maintained under a single entry system of bookkeeping are called Incomplete Records. Incomplete records generally give details of only one aspect of all the financial transactions of a business. In other words, accounts that are not recorded according to the double-entry system are known as Incomplete Records.
It is a mechanism under which some transactions are properly recorded with the debit and the credit sides, while some are partially recorded, and some are not recorded at all. This system considers only personal accounts and ignores impersonal accounts (such as real accounts and nominal accounts), thereby considering them incomplete. Incomplete Records are prepared as per the need and convenience of the business owner, as there are no set rules for recording them. This system of documentation is adopted by small enterprises and shopkeepers.

Features of Incomplete Records:

1. Unsystematic Recording: Transactions are recorded unsystematically, as there are no specific rules of bookkeeping under this system.

2. Incomplete Information: Only cash accounts and personal accounts of debtors and creditors are maintained. The real accounts and nominal accounts are not taken into consideration.

3. Convenient Recording: Records are maintained as per the need and convenience of the business owner.

4. Lack of Uniformity: Books of Accounts of two business units cannot be compared due to a lack of uniformity. 

5. Personal Recordings: Personal transactions of an owner may be recorded under a single entry system of bookkeeping.

6. Inaccuracy: Profit and loss ascertained are inaccurate due to a lack of full information.

7. Calculation Error: Preparing Trial Balance is not possible, hence arithmetic accuracy of accounts cannot be determined, causing calculation errors.

8. Inappropriate Reflection: No asset, liabilities, income, or expenses are recorded under this system, thereby Balance Sheet prepared fails to give an accurate picture of the financial position of an enterprise.

Reasons for Incompleteness of Records:

1. Lack of Accounting Knowledge: The person maintaining the accounts (generally owner) lacks proper knowledge of accounting principles and concepts. Due to this, the person records only those transactions, which according to him/her are important. 

2. Cost Cutting: In order to cut down the cost, no professional accountants are hired to maintain a complete record.

3. Time Saving: Only a few books are maintained under a single entry system of bookkeeping, which saves time.

4. Prepared as per the Convenience: Transactions are recorded according to the need and convenience of the owner.

Limitation of Incomplete Records:

1. Lack of Arithmetic Accuracy: Incomplete Records are based on a single entry system due to which Trial Balance cannot be prepared. As a result, the arithmetic accuracy of accounts cannot be determined.

2. Incomplete picture of Financial Position: The financial results of the business ascertained under this system are inaccurate. Hence, the records fail to provide a clear picture of the financial position of the business. 

3. Difficulty in Raising Fund: Incomplete Records fail to provide details of assets, liabilities, incomes, and expenses of the firm, hence the profitability, liquidity, and solvency position of the firm cannot be judged. As a consequence, the owner finds it difficult to raise funds from the banks and outsiders.

4. Inappropriate in the eyes of Government: The Taxation Department may not accept the Incomplete Records for the purpose of calculating taxes.

5. Difficulty in Claim Settlement: The insurance companies may refuse to accept the Incomplete Records for the settlement of the insurance claims, in case of loss of inventory by fire or theft.