Date Posted: 12/11/2012 6:14:52 AM
Posted By: saucer Membership Level: Gold Total Points: 4885
An incomplete record is an accounting system where not all the business transactions are recorded. If they are recorded, they are not put in the right books of account. This may be because the owners do not know how to record them. Secondly it could be because the small business can’t afford to higher qualified personnel to keep the books of account in order.These are some of the disadvantages a business may suffer from if it keeps incomplete records.1. It is impossible to compare the performance of similar businesses between different years. The businesses do not have accurate financial statements. This makes it difficult to compare between them which is more profitable and which performed better. The performance record will have to be made on assumption which is inconveniently inaccurate.2. Banks and other financial institutions offer loans after reviewing the financial statements. If the books are not in order the banks will not grant the business loans. This is because the information recorded is not accurate and may mislead the lender. Incomplete records show a degree of incompetence on the part of the entrepreneur, which may cause him/ her not to get the loan.3. It is difficult to measure the performance of the business. This makes planning difficult. It makes it hard when evaluating profits, losses and opportunities. The business decisions made from these records may not be effective when solving problems of the business.4. Other books of account depend on the accuracy of recording for them to add up. Books like the trial balance rely wholly on accuracy of the recording of the transactions. When being audited and the trial balance does not balance off, the government will assume the business is evading taxes or is illegal and can lead to jail term or a hefty fine.5. There is no detailed information on the liabilities or the capital base of the business. Incomplete records are inaccurate and may show a false figure that may mislead the business owners. When dealing with creditors and debtors, these records are unreliable. The creditors may quote a larger figure than the initial causing the business to pay more. The debtors may quote a smaller figure than the original causing you to get paid less. Since your records are incomplete you can’t refer. This may drive the business in recording losses and close down.6. When preparing financial statements you have to rely on other sources. These sources could be unreliable. They could give false information. These sources include the memory of the business owner which is unreliable because he/ she could forget some important information. This makes preparing these financial statements a tall order that is a daunting task.7. It is difficult to get reliable information on assets and depreciation expenses. The incomplete records may leave out such important information. They may show that the business is in a certain financial position which is false. This will in turn mislead the owner who will make bad decisions.
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