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.


----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

UNIT-II CAPITAL COMPARISON METHOD

1. Capital Comparison Method Also Known as Net Worth Method or Statement of Affairs Method.

Main Difference between Balance Sheet and Statement of Affairs:

Balance Sheet	Statement of Affairs
Balance sheet is prepared on the basis of double entry system of book keeping	Statement of affairs is prepared on the basis of incomplete records.
Balance sheet is prepared to present financial position of the business	Statement of affairs is prepared to find out either the amount of opening capital or closing capital.
Balance sheet shows the true financial position of the business.	Statement of affairs does not show the true financial position of the business.
Balance sheet is prepared at the  final stage of accounting procedure.	Statement of affairs is not prepared at the final    stage of the accounting procedure.It is prepared before the preparation of statement of profit or loss

2. Steps Under Capital Comparison Method:

1. Calculate Opening capital: 
Calculate by preparing an opening statement of affairs.Difference between total assets and outside liabilities is the capital on that date.

2. Calculate Capital at the end:
Calculate by preparing an closing statement of affairs.

3.Prepare the Statement of Profit and Loss:
Adjust the capital at close by adding drawings and subtracting additions to capital, Subtract capital at the beginning to arrive at profit for the year, and make other adjustments to arrive net profit.

4.Prepare a Fresh / revised Statement of Affairs at the end:
 By incorporating all adjustments such as depreciation, provisions, interest on drawings & Capital, etc.

A3 ADVANCED ACCOUNTS BC-III-A3 BLOCKS I-III

UNIT-1-Single Entry System

1.What is Single Entry system?

In a Nutshell,Single Entry System can be defined as an incomplete, inaccurate, unscientific and unsystematic style of account keeping.
Single entry system is "a defective double entry system adjusted to the convenience of the owner".
In other words, what cannot be strictly considered double entry system.

2.List the features of Single Entry System

1.Corporate bodies cannot follow this system.
2.In most of the cases, Only personal accounts are maintained.
3.A Cashbook is kept clubbing both business and Private transactions.
4.This is no uniformity in recording the two fold aspect of various transactions.
5.The information in respect of real and nominal accounts is ascertained from vouchers, receipts, invoices, counterfoils, etc.

3. What are the defects of Single Entry system?

1. Trail balance cannot be prepared: Because both the transactions are not recorded
2. Trading and Profit and Loss account cannot be prepared:Due Absence of Nominal accounts.
3.Balance sheet cannot be prepared:Due to No real accounts
4.No correct price of the business is available:Difficult to fix proper value of assets,especially of goodwill at the time of sales.
5.Scope for errors:prone to commission of errors due to unsystematic nature.
6.Scope for Frauds:Absence of Counter Checks.
7.Inadequate information:No recorded evidence.
8.Unscientific method:Results of business activity; ie. profit is sought to be calculated from the difference of Assets and liabilities.
9.Causes of profit unknown: Due to lack of profit statistical information.
10.Scope for doubt:Due to Unreliable records, any information obtained will not be free from doubt.