Accountancy · Ch 10 — Accounts from Incomplete Records (Single Entry System)
Conversion Method — Ascertaining Missing Figures
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 — Particulars | Amount (₹) | Cr — Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d (Opening Debtors) | xx | By Cash/Bank A/c (received from debtors) | xx |
| To Credit Sales A/c (balancing figure, if this is the missing item) | xx | By Discount Allowed A/c | xx |
| By Bad Debts A/c | xx | ||
| By Sales Returns A/c | xx | ||
| By Bills Receivable A/c (received from debtors) | xx | ||
| By Balance c/d (Closing Debtors) | xx | ||
| Total | xx | Total | xx |
Total Creditors Account
| Dr — Particulars | Amount (₹) | Cr — Particulars | Amount (₹) |
|---|---|---|---|
| To Cash/Bank A/c (paid to creditors) | xx | By Balance b/d (Opening Creditors) | xx |
| To Discount Received A/c | xx | By Credit Purchases A/c (balancing figure, if this is the missing item) | xx |
| To Purchase Returns A/c | xx | ||
| To Bills Payable A/c (accepted in favour of creditors) | xx | ||
| To Balance c/d (Closing Creditors) | xx | ||
| Total | xx | Total | xx |
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 …
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 …