Advanced Financial Accounting FIN-611

Mian Ahmad Farhan Lecture-3 Single Entry (Conversion Method)

Necessary Documents Required in Conversion Method

1. Cash book 2. Total Debtors account

3. Total Creditors account

4. Statement of affairs relating to opening date

5. Year end adjustment

Cash Book
Receipts Opening balance All receipts either relating capital or revenue receipts Amount Payment All payments either relating capital or revenue payments Closing balance Amount

xxx xxx

xxx

xxx

xxx

xxx

Debtors Account
Increase in Debtors Amount Decrease in Debtors Opening balance Credit sales xxx xxx Cash received from debtors Discount allowed Bad debts Sales return Closing balance Amount xxx xxx xxx xxx xxx

xxx

xxx

Creditors Account
Decrease in Creditors Amount Increase in Creditors Amount

Cash paid to creditors Discount received Purchase return Closing balance

xxx xxx xxx xxx

Opening balance Credit purchase

xxx xxx

xxx

xxx

Debit (Dr) and Credit (Cr) Rules

Debit (Dr) group Assets Expenses
Increase Decrease Dr. Cr.

Credit (Cr) group

Owners equity Liability Income
Increase Decrease Cr. Dr.

Statement of Affairs
It consists of previous year Balance Sheet items

Assets
Furniture & Fixture Equipments Stock Debtors Prepaid expenses Bank balance Cash

Amount (Rs) xxx xxx xxx xxx xxx xxx xxx xxx

Liabilities
Loan Creditors Payable expenses Owners equity/Net Assets (Balancing figure)

Amount (Rs) xxx xxx xxx xxx xxx

xxx

Year End Adjustments

It includes various adjustments relating to previous year.

Company Name Income Statement For the year ended ------Sales Less Cost of goods sold
Opening Stock Add Purchases Less Closing Stock

xxx
xxx xxx xxx

Less Operating expenses

Add Other Income

Gross Profit

xxx xxx xxx xxx xxx

Sales
Sales

Cash Sales
Journal Entry Cash xxx Sale xxx

Credit Sales
Journal Entry Debtors xxx Sale xxx

Cash Book
Receipts Cash received from debtors Amount Payment Amount

xxx

xxx

xxx

Debtors Account
Increase in Debtors Amount Decrease in Debtors Credit sales xxx Cash received from debtors Amount xxx

xxx

xxx

Purchases
Purchases

Cash Purchase
Journal Entry Purchase xxx Cash xxx

Credit Purchase
Journal Entry Creditors xxx Purchase xxx

Cash Book
Receipts Amount Payment Cash purchases Amount xxx

xxx

xxx

Creditors Account
Decrease in Creditors Amount Increase in Creditors Amount

Credit purchase

xxx

xxx

xxx

Closing Stock

Closing stock information is available at year end balance sheet.

Operating Expenses
1. 2. 3.

Cash based expenses Expenses relating to receivables Expenses relating to fixed assets a). Depreciation b). Loss on disposal of an assets

Cash Book
Receipts Amount Payment Expenses paid in cash Amount

xxx

xxx

xxx

Cash Based Expenses

Expenses paid in cash during the year Less Opening balance of Accrued expenses Add Closing balance of Accrued expenses Add Opening balance of Prepaid expenses Less Closing balance of Prepaid expenses xxx xxx xxx xxx xxx xxx

Expenses Related to Receivable

1.

2.
3.

Discount Allowed Debtors account Bad debts Provision for doubtful debts Year end adjustment

Provision for Doubtful Debts

1.

2.

When there is an increase in Provision it will be charged as an expense. When there is an decrease in Provision it will be credited to the expense.

Operating Expenses
1. 2. 3.

Cash Account Cash based expenses Debtors Account & Expenses relating to receivables Year end adjustment Expenses relating to fixed assets Year end adjustment a). Depreciation Cash Account & b). Loss on disposal of an assets Year end adjustment

Other Income
1.

2.
3.

Incomes based on cash Incomes relating to payables Incomes relating to fixed assets

Incomes Based on Cash

Cash received during the year Less Opening balance of Accrued income Add Closing balance of Accrued income Add Opening balance of advance income Less Closing balance of advance income xxx xxx xxx xxx xxx xxx

Incomes Relating to Payables

Journal Entry

Discount received

Creditors xxx Income xxx

Income Relating to Fixed Assets

Profit on disposal of an Assets.