Incomplete records in Principles of Accounts consist of 3 important areas. I be focusing on one of the method known as the, Capital comparison method, in this post.
Capital comparison method utilities the balance sheet equity logic to work backwards in deriving the profit or loss for the year.
We know that
Beginning balance + Additional Capital + Profit for the year – Drawings = Ending Balance
Through alegbra, we can rewrite it as
Profit for the year = Ending balance – Beginning balance – Additional Capital + Drawings
And that basically forms the statement of profit or loss for the year!
Recall that how the statement looks like : –
This is why the statement looks like this. In summary, this statement is exactly the formula :
Profit for the year = Ending balance – Beginning balance – Additional Capital + Drawings
If you want to know the techniques to learn for learning Principles of Accounts (POA), read up Learning Principles of Accounts (POA) and Scoring As.
Felix Lim is the coach for Principles of Accounts (POA) Tuition class in Edulight Learning Hub. Experience in the line of coach Principles of Accounts (POA) for over 10 years, he understood well how students learn through the wrong methods. He seeks to correct the wrong methods of learning in Principles of Accounts (POA) and advocate “Understanding not Memorizing” in his teachings.
You can visit Edulight Learning Hub to understand more about him and his tuition sessions.