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Conversion Method

In case it is desired to calculate such profit figures as gross profit and net profit, then it becomes necessary to convert single entry records to double entry records. However, it must be made clear that the conversion is not possible in every case where the records are incomplete. Moreover, the amount or work to be done to a set of books, which are in an incomplete state, to convert them to double entry, will differ with almost every set of books. Everything would depend upon an individual case and the fact what records have been kept by a particulars businessman. As a matter of fact, conversion of single entry into double entry involves the lengthy process of journalizing, posting, balancing and ultimately preparation of trial balance. Though this procedure may be logical and most desired one, yet in most cases it is not feasible in practice. Under such circumstances, therefore, the final accounts must be prepared directly from whatever information is available. In brief, the final accounts may be prepared not necessarily from the trial balance but from the scattered information which is equivalent to trial balance. If the scattered information inadequate or certain important figures are missing the same must be ascertained first by preparing necessary ledger accounts before preparing final accounts. The following procedure is generally adopted to convert a set of books maintained on single entry into double entry:

1.    First of all, it is essential to obtain the figures of balances of various accounts. It is accomplished by preparing opening statement of affairs. All the accounts with the exception of cash and bank balances, debtors and creditors must be debited and credited as the case may be, in the ledger under appropriate account titles.

2.    When the subsidiary books are maintained, it implies that posting to personal accounts has already been done. The accountant would be simply required to post periodical totals of subsidiary books to the relevant impersonal accounts. For instance, the total of purchases book and returns inwards book are posted to debit sides of the purchases account and returns inwards book are posted to debit sides of the purchases account and returns inwards account respectively. And total of sales book and returns outwards book are posted to the respective credit sides of sales accounts and the return outwards account. The posting of cash book must have been completed in respect of personal accounts. But posting in respect of impersonal accounts like cash sales, purchases of goods, sales and purchases of various assets and individual expenditure accounts and income accounts must be now completed. Where some amounts have been directly entered in personal accounts by passing the subsidiary book, it is essential to prepare a list of such transactions, make a journal entry and post it to the relevant account.

3.    Where subsidiary books or journals have not been completely written up, it would be necessary to undertake a thorough analysis of sales ledger and purchases ledger as explained below:

(a)    Analysis of sales ledger or debtors’ ledger.

It would disclose information pertaining to the opening balance of the debtors, the goods sold to them on credit during the year, bills receivable dishonored, if any; cash received from them in the accounting period, discount, rebate or any other concession allowed to them, receipt of bills receivable, returns inwards, bad debts written off and transfers. Journal entries must be made by debiting or crediting the impersonal accounts concerned with contra credit or debit given to total debtors account.

(b)    Analysis of purchases ledger or creditors’ ledger.

The information is available in respect of opening balance of the creditors, goods purchased on credit, bills payable dishonored; cash paid to the creditors during the year, discount and other concessions obtained, returns outwards and transfers. Here also, journal entries must be made by debiting or crediting the respective impersonal accounts. Contra credit or debit being given to total creditor’s account.

As the double entry is now complete in respect of various transactions, it should not be difficult to prepare the trial balance. The final accounts could be prepared after incorporating the following adjustments for: outstanding and prepaid expenses, prepaid income and income received in advance, provision for depreciation on fixed assets, interest on capital etc.,

The procedure outlined above would enable the preparation of final accounts from a trial balance. But as noted above, where it is not possible to convert single entry into double entry via trial balance, the final accounts could be prepared with the help of scattered information which can be had from the following sources:

(i)    Cash Book transaction/Bank Pass Book.

(ii)    Opening and closing balances or personal and real accounts.

(iii)    Additional information relating to closing balances and adjustments; information regarding debtors and creditors.

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