Unit-16 Accounts From Incomplete Records-II

Learn how such information is extracted from the incomplete records and how profit or loss is ascertained under the Conversion Method.

Explain the steps you will take to ascertain the profits under Conversion Method.

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Learning Pundits Content Team

Written on Jun 24, 2019 4:21:47 PM

Abridged Conversion Method

  • The conversion of records maintained on single entry system into double entry records is an arduous task involving a lot of time, labor and expense. Hence, a short cut method known as 'Abridged Conversion Method' has been devised which helps us to prepare the Trading and Profit & Loss Account and the Balance Sheet without the opening of any additional accounts in the ledger. Under this method we simply prepare a summary of all Cash transactions for the entire accounting period. This is known as 'Receipt and Payments
  • In this account we show the opening cash and bank balances and enter all receipts during the year under different heads of accounts on its debit side. All Payments during the year under various head of accounts and the closing balances of cash and bank are shown on its credit side. This enables us to work out the amounts of .various incomes earned and the expenses incurred during the year. Not only that, a number of other items such as cash purchases, cash sales, cash received from debtors, cash paid to creditors, and purchase or sale of fixed assets can also be worked out from the Receipt and Payments

Abridged Conversion Method

  • Similarly, we prepare a Total Debtors and a Total Creditors Account to find out the amounts of credit sales and credit purchases respectively. This enables us to work out most of the figures required for preparing the final accounts at the end of the accounting period. In such a situation, there is no need to open any real or nominal account in the ledger or prepare a Trial Balance. Note that the Receipt and Payments Account and Total Debtors and Total Creditors Accounts do not form part of the ledger. They are prepared simply to ascertain the amounts of a few missing items.
  • The Conversion Method usually refers to the abridged conversion method which implies the preparation of Trading and Profit and Loss Account and the Balance Sheet from incomplete records after finding out certain missing figures with the help of Receipts and Payments Account, Total Debtors Account and Total Creditors Account.

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