The accounting records of many smaller nonprofit organizations, such as clubs, cultural societies, and small businesses, are often kept using a single-entry bookkeeping system. However, the details of the financial activities of such organizations and companies are available in different documents such as bank statements, invoices, accounts, salary slips and minute books.

There are two main disadvantages to such incomplete (non-double-entry) accounting records: (1) a great deal of useful information can be lost. It is possible to prepare financial accounting statements from the information available, but this may be more difficult than when complete records are available. Certain transactions may not be accounted for and there is also no continuity in the recording of financial information and other useful information. (2) The benefits of controls inherent in a double-entry bookkeeping system are lost.

A discussion of the treatment of incomplete records is useful for several reasons. First of all, it emphasizes the advantage of a complete system of double accounting. Furthermore, it is practical because accountants often have to prepare financial statements from such incomplete records, mainly for income tax purposes. In practice, therefore, the conversion from single-entry to double-entry accounting information is an analytical exercise. It may also happen that a company’s double-entry accounting records are lost (eg as a result of fire damage) and must be reconstructed by the accountant from incomplete records. Consequently, attention is paid to certain practical aspects and procedures that arise as a consequence of keeping incomplete accounting records.

Suppose a merchant has been in business for some time and wants to determine his interest in committing on a specific date. For this he must determine the total interest in the business and against this, take into account any external interest. This can be done by building a statement of wealth. (Basically, it contains the same information as the balance sheet, but it is not prepared from account balances in a double-entry bookkeeping system.)

The statement of assets should be prepared by reference to any available applicable information. Taking into account that, companies that do not have formal accounting systems will find it necessary to keep records of certain basic information to carry out their business. For example, records of cash received and paid, and amounts owed, both to and by the business, are essential. Cash on hand can be determined from a cash count, cash in the bank from the bank statement, and amounts owed to the company from invoices. Inventories can be physically counted and valued. The cost of purchased fixed assets can be determined from supporting documentation. The owner’s equity will be the difference between the values ​​assigned to assets and liabilities.

The most practical method of determining net profit or loss from incomplete accounting records is to analyze the change in owner’s equity over a specified period. Obviously, owner’s equity increases if a profit is made and when the owner makes additional investments in the business. Conversely, owner’s equity decreases as a result of losses and withdrawals by the owner.