Topic 14 - Incomplete records

Question 1

What are the advantages and disadvantages of keeping double entry records?

Answer 1

Advantages:
- Structured record system that provides detail (we can avoid errors and fraud)
- Availability of up-to-date information
- Enables systematic analysis of data, financial analysis and comparison
- Enables the operation of a credit control system
- Easy to produce final accounts and eventually save on accountancy fees
- Tax authorities require a full set of financial statements

Disadvantages:
- Time and cost of setting up and operating the double entry system
- Need accounting knowledge or hire an accountant incurring additional cost

Question 2

How do we find the profit of the year with very little information?

Answer 2

Opening equity (assets - liabilities) + profit/loss for the year + equity introduced - drawings = closing equity (assets - liabilities)