This document discusses the conversion method for single entry accounting systems. The conversion method converts incomplete single entry records into complete double entry records to provide more information. It involves determining opening balances, cash transactions, debtors and creditors, sales and purchases figures, expenses and incomes. Various problems are presented to show how to calculate items like credit sales, purchases, bills receivable, payable and closing stock. Direct expenses are expenses connected to purchasing goods. The goal of the conversion method is to transform single entry records into a double entry system to gain its benefits like better management and obtaining loans.

1. MODULE 1.2 –
SINGLE ENTRY SYSTEM
OF ACCOUNTING
BCM2B02 FINANCIAL ACCOUNTING
SEMESTER II
B. COM COURSE
UNIVERSITY OF CALICUT

2. Conversion Method
 Net Worth Method can help in ascertaining business results, i.e., profits. But,
under this method certain vital information (e.g., sales, purchases and
operating expenses) is not available from incomplete records, We can get such
information by adopting Conversion Method.
 Conversion Method means converting the accounts from incomplete records
to complete records.
 This method does not provide clear information about the real business
situation. To overcome this, business keeping books under single entry would
wish to convert the books from single entry system into double entry system.
If the business keeps its records in double entry system it enjoys various
benefits like better management, tax benefits, obtaining loans etc. so they go
for converting their single entry to the double entry form of book keeping.
Conversion is done by taking the available record and information from the
incomplete records and finding out those missing information which are
required to prepare the final statements by double entry system. After
conversion all the transactions will be recorded according to the double entry
system.

3. Procedure
 Opening statement of affairs – Opening capital
 Cash book – Opening and closing cash balance
 Total debtors A/c, Total creditors A/c, Bills Receivable A/c, Bills Payable A/c
 Total sales and total purchases
 Nominal accounts – expenses, losses, incomes
 Trial balance – arithmetical accuracy
 Make necessary adjustments ( Ex: outstanding expenses, prepaid expenses, income
received in advance etc. )
 Trading and Profit & Loss A/c, Balance Sheet

4. Ascertainment of
Sales
Credit
sales
Cash
sales
Total
sales
Cash Book
Total Debtors
A/c

5. Problem 10 – Find credit sales.

6. Ascertainment of Purchases
Credit
purchases
Cash
purchases
Total
purchases
Cash Book
Total creditors
A/c

7. Problem 11- Find credit purchase

8. Problem 12- Calculate cash sales

9. Problem 13 – Calculate cash purchases

11. Problem 14- Calculate Bills Receivable

12. Problem 15- Calculate Bills Payable

13. Opening stock and Closing stock calculation
 Opening Stock = Cost of goods sold + Closing stock - Direct expenses
 Closing Stock = Opening Stock + Purchases + Direct expenses – Cost of sales
 Cost of goods sold=Sales-Gross Profit
 % of Gross Profit on sales = % of Gross Profit on cost of sales X 100
100 + % of Gross Profit on cost of sales
 Gross Profit Ratio 

14. G/P given as % on sales OR % on cost
 If G/P given as % on sales is given, Calculate cost of sales directly on Sales
i.e., Sales = 1,00,000 and G/P = 20% 0n sales
1,00,000 X 20/100 = 20,000  GP
Cost of sales = Sales – GP  1,00,000 – 20,000 = 80,000
 If G/P given as % on Cost is given; First, find G/P on sales and then % of
sales
i.e., Sales = 1,00,000 and GP = 25% on cost
G/P on sales = (25X100)/(100+25) = 20%

15. Percentage on Cost of
sales
Cost of sales in fraction Sales in fraction
50% 1/2 1/3
25% 1/4 1/5
20% 1/5 1/6
Problem 16

17. Closing Stock
 Closing Stock = Opening Stock + Purchases + Direct expenses – Cost of sales
Direct Expenses:
Expenses connected with purchases of goods are known as direct
expenses. For example, freight, insurance, of goods in transit, carriage,
wages, custom duty, import duty, octroi duty etc. Without incurring these
expenses, it is not possible to bring the goods from the purchase point to
the godown of the business. such expenses are collectively known as direct
expenses.

18. Problem 17
Particulars Amount (Rs.)
Sales 5,00,000
G/P Ratio 10 % on sales
Purchases 3,90,000
Opening stock 60,000
Wages 40,000
From the following particulars calculate the value of closing stock

20. Problem 18

21. Problem 19

22. Particulars Amount(Rs.) Particulars Amount(Rs.)
Opening Stock 25,000 Sales(Bal.Fig.) 1,28,000
Purchases 91,000 Closing Stock 20,000
Gross Profit(25% on
selling price)
32000
1,48,000 1,48,000

23. Problem 20

25. Problem 21

27.  Opening capital – Statement of Affairs
 Cash and Bank balances – Cash Book
 Assets – Differences in balances during opening and closing dates
Cash Book – Sale/Purchase
Depreciation – Additional information