A3-CONVERSION METHOD

UNIT-III: CONVERSION METHOD

Conversion method is nothing but conversion of accounts maintained under single entry system into double entry system involves preparation of various accounts.


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The following steps are necessary to prepare the final accounts i.e Trading and Profit and Loss Account, and Balance Sheet - From the incomplete information given in the question.


1.Prepare and opening statement of affairs so as to calculate capital at the beginning of the year.

2. Prepare summaries of cash book (cash account and bank account) separately. If that is not possible a combined cash and bank account may be prepared.

3.Prepare other accounts viz.. Total Debtors Account, Total Creditors Account, Bills Receivable Account and Bills Payable Account, and Memorandum Trading account.

These helps is in finding out credit sales, credit purchases or debtors and creditors balances, etc. in
the beginning or the end of the year.

4. Calculate total purchases and total sales. The total purchases can be arrived at by adding the credit purchases and cash purchases. Similarly the total sales can be found by adding credit sales and cash sales.

5.Prepare a trail balance to test the accuracy of accounts. However, the preparation of the trial balance is not compulsory.

6.Now prepare final accounts i.e Trading and profit and Loss A/c and the Balance sheet, by taking into account various adjustments.