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Accountancy · Ch 10 — Accounts from Incomplete Records (Single Entry System)

Conversion Method — Ascertaining Missing Figures

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Conversion Method — Ascertaining Missing Figures

The Statement of Affairs Method only estimates the OVERALL profit for a period, through a net-worth comparison — it does not reveal how that profit was actually earned, since there is no Trading Account showing sales, purchases, gross profit, or a Profit and Loss Account showing individual expense and income heads. A business that genuinely needs a full set of final accounts — for example, to satisfy a bank considering a loan, to file an income-tax return, or to work out a fair basis for admitting a new partner — must instead CONVERT its incomplete records into a proper double-entry basis. This is called the Conversion Method.

The usual starting point of conversion is reconstructing figures a genuine double-entry ledger would have recorded automatically, but which the trader never actually noted down — most importantly, CREDIT SALES and CREDIT PURCHASES for the year, since a Trading Account cannot be prepared without them, yet a trader keeping only a "simple" or even a "quasi" single entry system typically has no sales or purchases day book that totals these directly.

The standard technique is to prepare a memorandum Total Debtors Account and a Total Creditors Account (sometimes called Total Debtors/Creditors Ledger Adjustment Accounts), bringing together into one place every transaction of the year that is known to have affected debtors or creditors, and then treating whichever single figure is genuinely missing — most often credit sales or credit purchases, though occasionally cash received, cash paid, or an opening/closing balance instead — as the balancing figure that makes the account tally.

Total Debtors Account

Dr — ParticularsAmount (₹)Cr — ParticularsAmount (₹)
To Balance b/d (Opening Debtors)xxBy Cash/Bank A/c (received from debtors)xx
To Credit Sales A/c (balancing figure, if this is the missing item)xxBy Discount Allowed A/cxx
By Bad Debts A/cxx
By Sales Returns A/cxx
By Bills Receivable A/c (received from debtors)xx
By Balance c/d (Closing Debtors)xx
TotalxxTotalxx

Total Creditors Account

Dr — ParticularsAmount (₹)Cr — ParticularsAmount (₹)
To Cash/Bank A/c (paid to creditors)xxBy Balance b/d (Opening Creditors)xx
To Discount Received A/cxxBy Credit Purchases A/c (balancing figure, if this is the missing item)xx
To Purchase Returns A/cxx
To Bills Payable A/c (accepted in favour of creditors)xx
To Balance c/d (Closing Creditors)xx
TotalxxTotalxx
Definition 1Conversion Method

The technique of reconstructing a trader's incomplete records into a full double-entry basis — a proper Trading and Profit and Loss Account and Balance Sheet — typically by preparing memorandum Total Debtors, Total Creditors, Bills Receivable and Bills Payable accounts to recover missing …

Definition 2Total Debtors Account

A memorandum account bringing together every transaction of the year affecting debtors as a group (opening balance, credit sales, cash received, discount, bad debts, returns, bills receivable, closing balance), used to find whichever single one of these figures a tr …