Accounts from Incomplete

Records

APS ACADEMY
 Topics to Study

 Single Entry System

 Conversion Method
What is Single Entry System?
 The normal accounting is double entry system, i.e., it
consists of two aspects: debit and credit.
 This might be a bit too complex for small businesses,
which then use single entry system.
 A single entry system may be defined as a system in
which only records of cash and personal accounts are
maintained.
 Opening Capital and
Closing Capital
 Suppose we start a business on 1/4/18 and need to
find the capital on 31/3/19.
Opening Additional Additional
Drawings:
capital: capital: capital: Profit: 4,000
7,000 2,000
20,000 3,000

 The capitals after every transaction are: 23,000

→16,000→18,000.

 The profit will finally be taken by the owner, so, his

closing capital will be 22,000.
 Opening Capital and
Closing Capital
 So, closing capital and opening capital are related by
the formula:

Closing capital = opening capital + additional capital

introduced – drawings + profits

If there is a loss, instead of taking profits, the owner

has to bear the losses, which reduces his capital:

Closing capital = opening capital + additional capital

introduced – drawings – losses
 Finding Profit
 Similar to finding net profit in double entry system, we
have to find profit in single entry system.
 The formula we use is:

Closing capital = opening capital + additional capital

introduced – drawings + profits

 Profits = Closing capital + drawings – additional

capital – opening capital
 Finding Profit
 Statement of profit or loss:

Particulars Amount

Closing capital ---

Add: drawings ---

Less: additional capital ---

Less: opening capital ---

Profit
 Example
 Raju maintains books on single entry system. He gives
you the following information:

i. Capital on 1st April 2018: 30,400

ii. Capital on 1st April 2019: 33,800

iii. Drawings during the year: 9,600

iv. Capital introduced on 1st Aug 2018: 4,000

 Example contd.
 Statement of profit or loss:

Particulars Amount

Closing capital 33,800

Add: drawings 9,600

Less: additional capital 4,000

Less: opening capital 30,400

Profit 9,000
 Example
 Raju’s capital on 31st March 2019 is Rs. 187,000 and his
capital on 1st April 2018 was Rs. 192,000.
 During the year he withdrew 84,200 from the business
and once sold his investment of Rs. 20,000 at 2%
premium and brought that money into the business.
 Prepare a statement of profit or loss.
 Example contd.
 Statement of profit or loss:

Particulars Amount

Closing capital 187,000

Add: drawings 84,200

Less: additional capital 20,400

Less: opening capital 192,000

Profit 58,800
What if drawings or additional
capital is not mentioned?
 Whenever, these two are missing in the question, we
take them as zero.
What if drawings or additional
capital is not mentioned?
 Sometimes questions do not provide the opening and
closing capitals directly.
 Instead a list of items are given, which are either assets
or liabilities, from which we have to find capitals.
 So, we make 2 balance sheets:

i. On 1st April (opening day): to find opening capital

ii. On 31st March (last day): to find closing capital

Then use the formula: capital = assets – liability

 Example
 Raju started a business on 1st April 2018 with capital of
10,000. On 1st July, 2018 he borrowed from his wife a
sum of 4,000 @9% (interest not paid yet) for business
and introduces a further capital of his own amounted
to Rs. 1,500.
 On 31st March 2019, his position was:
Cash Stock Debtors Creditors
600 9400 7000 6000

 Find his profit/loss if his drawings are 2,000.

 Example contd.
Particulars Amount
Closing capital Not given
Add: drawings 2,000
Less: additional capital 1,500
Less: opening capital 10,000
Profit or loss ??

 We need to determine the closing capital using the

information given in the question.
 So, we need to make a balance sheet on the last day.
 Example contd.
Statement of Affairs, 31st March 2019
Liabilities Amount Assets Amount
Creditors 6,000 Cash 600
Mrs. Raju’s loan: Stock 9,400
4000 4270 Debtors 7,000
+ Interest on loan: 270
10,270 17,000
 Capital = Assets – Liabilities

= 17,000 – 10,270

= 6,730 (closing capital)

 Example contd.
Particulars Amount
Closing capital 6,730
Add: drawings 2,000
Less: additional capital 1,500
Less: opening capital 10,000
Net Loss 2,770

 Capital = Assets – Liabilities

= 17,000 – 10,270

= 6,730 (closing capital)

 Money taken from
Proprietor’s Wife
 This is a common error made by students.

 Money taken from the wife of the proprietor is a

liability to the business
 It is not considered as additional capital.
 Example
 Raju keeps his books under single entry system. His
assets and liabilities were as under:
Cash Stock Sundry Plant and Sundry Bills
Debtors Machinery Creditors Payable
31/3/18 1000 34,000 39,000 60,000 15,000
31/3/19 900 32,000 45,000 80,000 14,900 5,000

 During 2018-19, he introduced Rs. 10,000 as additional

capital. He withdrew Rs. 3,000 every month for his
household expenses. Determine his profit for the year.
 Example contd.
Statement of Affairs, 31st March 2018

Liabilities Amount Assets Amount

Sundry Creditors 15,000 Cash 1,000
Stock 34,000
Capital (Balance) 1,19,000
Sundry Debtors 39,000
Plant and Machinery 60,000
134,000 134,000

 So, the opening capital is Rs. 1,19,000

 Example contd.
Statement of Affairs, 31st March 2019

Liabilities Amount Assets Amount

Sundry Creditors 14,900 Cash 900
Bills Payable 5,000 Stock 32,000
Capital (Balance) 1,38,000 Sundry Debtors 45,000
Plant and Machinery 80,000
157,900 157,900

 So, the closing capital is Rs. 1,38,000

 Example contd.
 Statement of profit or loss:
Particulars Amount
Closing capital 138,000
Add: drawings 36,000
Less: additional capital 10,000
Less: opening capital 119,000
Net Profit 45,000
 Topics to Study
 Single Entry System

 Conversion Method
 Conversion Method
 This is a more advanced method, when the given information
is not sufficient to prepare the trading account or profit and
loss account.
 So, we make ledgers of individual accounts and find missing
entries, and use them to make financial statements.
 Since making ledgers leads us to two-sided double entry
system, we effectively convert from single entry to double
entry system.
 Therefore, it is called conversion method.
 List of accounts to be made
1. Cash book

2. Opening statement of affairs (opening Balance Sheet)

3. Debtors A/c

4. Bills Receivable A/c

5. Creditors A/c

6. Bills Payable A/c

Calculate total sales and purchases (after preparing these 6

A/c)
 Debtors Account
Dr. Format of debtor account Cr.
To balance b/d By Sales Returns
To credit sales (remember to not By Cash A/c (cash collected
put cash sales) from debtors)
To Bank (cheque dishonoured) By B/R Account (B/R
collected from debtors)
To B/R A/c (B/R dishonoured) By discount allowed
By bad debt A/c
By balance c/d xxx
 These two postings are also cross-posted to B/R A/c
 Debtors are assets, debit side increases it, credit side decreases
 Common Error
 We are often given sales, and students write down the
entire sales on debit side of debtor account.
 However, a debtor only becomes a debtor when he
buys something on credit. So, we need to consider only
credit sales.
 A person purchasing on cash does not make him a
debtor to our firm.
 B/R Account
Dr. Format of Bills Receivable Account Cr.
To balance b/d By cash A/c (B/R collected)
To debtor A/c To debtor A/c
By bank A/c (B/R discounted)
By bank A/c (discounting charges)
By creditors A/c (B/R endorse)
By balance c/d
 B/R are assets, which increase with entries on debit side
and decrease by entries on credit side.
 Cross-posted to Creditors A/c
 Creditors Account
To B/R A/c (B/R Endorse) By balance b/d
To purchase return By credit purchases
To discount received By debtor A/c (Endorsed B/R
dishonoured)
To Cash A/c (paid to creditor)
To B/P A/c (B/P accepted)
To balance c/d

 Cross-posted to debtor account

 Cross-posted to B/P account

 Bills Payable Account
To cash A/c (B/P discharged) By balance b/d
To creditor A/c (B/P dishonoured) By creditor A/c (B/P
accepted)
To balance c/d

 Cross-posted to creditor A/c

 Why do we make these
accounts?
1. We get credit sales from debtors A/c
2. We get credit purchases from creditors A/c

Sometimes, we make these two accounts to get the opening

or closing balance of debtors or creditors.

3. B/R account is usually prepared to get the opening or

closing balance of Bills Receivable.

4. B/P account is usually prepared to get the opening or

closing balance of Bills Payable.
 Useful Formulae
 COGS = Opening stock + net purchases + direct expenses –
closing stock
 COGS = Net Sales – Gross Profit
 Net Purchases = Total Purchases – Purchase Return
 Total Purchase = Cash Purchase + Credit Purchase
 Net Sales = Total Sales – Sales Return

Note: After calculating credit purchases and credit sales from

creditors and debtors A/c, we add them to cash purchases and
credit sales to get total purchases and total sales.
 Example
 Debtors in the beginning of the year were Rs. 30,000.
Sales on credit during the year were Rs. 75,000.
 Cash received from the debtors was Rs. 35,000.

 Returns inward were Rs. 5,000 and B/R drawn during

the year were Rs. 25,000.
 Find the balance of debtors at the end of the year,
assuming that there were bad debts during the year of
Rs. 2,000.
 Example contd.
 Debtors Account
Particulars Rs. Particulars Rs.
To balance b/d 30,000 By sales return 5,000
To credit sales 75,000 By cash collected 35,000
By bad debts 2,000
By B/R A/c 25,000
By balance c/d 38,000
(debtors at the end)
105,000 105,000
 Example
 Determine appropriate missing value by preparing total
debtors account from this information:

Particulars Amount Particulars Amount

Debtors (1st April 2018) 20,400 Bad debts 2,400
Cash received from debtors Cash Sales 56,800
(including Rs. 1,000 being Debtors (31st March 2019) 27,600
sale proceeds of an old 61,800
printer sold on credit, Sales Return 5,400
received during the year)
 Example contd.
 The most important entry in debtors account is ‘Sales
on credit’. That is the reason for making debtors A/c.
Particulars Amount Particulars Amount
To Debtors (1st April 2018) 20,400 By Bank A/c (61,800 – 1000) 60,800
To Sales A/c 75,800 By Sales Return A/c 5,400
By bad debts 2,400
By balance c/d 27,600
96,200 96,200

 Therefore, the credit sales are 75,800

 Example
 Determine the appropriate missing value by preparing
the creditors account.

Particulars Rs. Particulars Rs.

Cash Purchases 17,000 Purchases Return 1,000
Creditors (1/4/18) 8,000 Creditors (31/3/19) 13,400
Cash paid to creditors 31,000
 Example contd.
 The most important entry in creditors account is ‘Purchases
on credit’. That is the reason for making creditors A/c.

Particulars Rs. Particulars Rs.

To Cash A/c 31,000 By balance b/d 8,000
To Purchase Return A/c 1,000 By Purchases A/c (balancing) 37,400
(credit purchases)
To balance c/d 13,400
45,400 45,400

 Therefore, the credit purchases are 37,400

 Example
 From this information, determine the closing balance of
B/R and opening balance of B/P account:
Particulars Rs.
Opening balance of bills receivable 11,000
Closing balance of bills payable 8,000
Bills payable issued 35,000
Bills receivable encashed 46,000
Bills receivable received 49,000
Bills payable paid in cash 36,000
Bills receivable dishonoured 1,000
 Example contd.
Bills Receivable Account
Particulars Rs. Particulars Rs.
To balance b/d 11,000 By cash/bank A/c 46,000
To Sundry Debtors A/c 49,000 By sundry debtors A/c 1,000
By balance c/d 13,000
60,000 60,000
 Example contd.
Bills Payable Account

Particulars Rs. Particulars Rs.

To cash/bank A/c 36,000 By balance b/d 9,000
To balance c/d 8,000 By sundry creditors A/c 35,000
44,000 44,000
 Example
 From the following information, calculate total sales:

Particulars Rs. Particulars Rs.

B/R in the beginning 15,600 Sales return 17,400
Debtors in the beginning 61,600 B/R Dishonoured 3,600
B/R encashed during the year 41,800 B/R at the end 12,000
Cash received from debtors 1,40,000 Debtors at the end 51,000
Bad debts written off 5,600 Cash Sales 81,800
 Example contd.
 We need to find total sales, so we need two things:

a. Cash sales: given in the question

b. Credit sales: from debtors account

Srep 1. bill receivable during the year from B/R account

So, we take B/R during the year and cross-post in debtors

account to get credit sales as a balancing figure.

Step 2. credit sales during the year from debtors account

 Example contd.
Bills Receivable Account
Particulars Rs. Particulars Rs.
To balance b/d 15,600 By cash/bank A/c 41,800
To total debtors A/c (bills 41,800 By debtors A/c 3,600
received during the year)
(balancing figure)
By balance c/d 12,000
57,400 57,400

Sales through bills receivable (will be cross-posted in debtors A/c) is used

to get credit sales from debtors A/c
 Example contd.
Debtors Account
Purchases Rs. Purchases Rs.
To balance b/d 61,600 By cash/bank A/c 1,40,000
To bills receivable A/c (dishonoured) 3,600 By bad debts A/c 5,600
To sales A/c (credit sales) 1,90,600 By sales return A/c 17,400
(balancing figure)
By B/R A/c (cross- 41,800
posted from B/R)
By balance c/d 51,000
Credit Sales
2,55,800 255,800

 Total Sales = 190,600 + 81,800 = 272,400

 Learning from the Example
 If we make the B/R account by excluding the debtors
A/c entry on debit side, it will not match.
 The balancing figure is the debtors account.

 We then cross-post it to debtors account.

 Using that we find the credit sales from debtors account

 Example
 Calculate total sales from this information:
Bills Receivables on 1/4/17 7,800
Debtors on 1/4/17 30,800
Cash received on maturity of B/R during the year 20,900
Cash received from debtors 70,000
Bad debts written off 4,800
Returns inward 8,700
B/R dishonoured 1,800
B/R on 31/3/18 6,000
Debtors as on 31/3/18 25,500
Cash sales during the year 15,900
 Example contd.
B/R Account

Particulars Rs. Particulars Rs.

To balance b/d 7,800 By cash/bank A/c 20,900
To total debtors A/c (bills 20,900 By debtors A/c 1,800
received during the year)
(balancing figure)
By balance c/d 6,000
57,400 57,400
 Example contd.
Debtors Account
Purchases Rs. Purchases Rs.
To balance b/d 30,800 By cash/bank A/c 70,000
To bills receivable A/c (dishonoured) 1,800 By bad debts A/c 4,800
To sales A/c (credit sales) 97,300 By sales return A/c 8,700
(balancing figure)
By B/R A/c (cross- 20,900
posted from B/R)
By balance c/d 25,500
2,55,800 255,800

 Total Sales = 15,900 + 97,300 = 113,200

 Example
 Calculate total purchases from following information:
Particulars Rs. Particulars Rs.
B/P in the beginning 15,000 Cash paid to creditors 90,600
during the year
Creditors in the beginning 18,000 B/P discharged during 26,700
the year
B/P closing balance 21,000 Purchases return 3,600
Creditors closing balance 12,000 Cash purchases 77,400
 Example contd.
 For total purchases, we need two things:

1. Cash purchases: given in the question

2. Credit purchases: found through creditors account

We also have to make B/P account, and from that we

find B/P throughout the year.

We will cross-post this in creditors account, and get

credit purchases as a balancing figure.
 Example contd.
Bills Payable Account

Particulars Rs. Particulars Rs.

To cash/bank A/c 26,700 By balance b/d 15,000
To balance c/d 21,000 By Creditors A/c (bills 32,700
accepted through the
year)
47,700 47,700
 This is cross-posted to creditors account
 Example contd.
Creditors Account

Particulars Rs. Particulars Rs.

To cash/bank A/c 90,600 By balance b/d 18,000
To purchases return 3,600 By Purchases A/c 1,20,900
(credit purchases)
(balancing figure)
To B/P A/c (cross- 32,700
posted)
To balance c/d 12,000
1,38,900 1,38,900

 Total Purchases = 120,900 + 77,400 = 1,98,300

 Example
 Determine total sales and total purchases:
Particulars Rs. Particulars Rs.
Opening debtors 11,400 Opening creditors 6,800
Cash received 48,300 Cash paid to creditors 25,100
Discount allowed 1,500 Discount received 300
Bad debts written off 300 Purchases return 600
Sales Return 800 Bills payable issued 3,100
B/R received 6,100 Closing creditors 5,400
Closing debtors 10,800 Cash purchases 50,000
Cash sales 1,00,000
 Example contd.
 We need total sales and total purchases:

1. Total sales: cash sales + credit sales

2. Total purchases: cash purchases + credit purchases

Credit sales are calculated through debtors account and

credit purchases are calculated through creditors account.
 Example contd.
Debtors Account
Particulars Rs. Particulars Rs.
To balance b/d 11,400 By cash/bank A/c 48,300
To sales A/c (credit sales) 56,400 By discount allowed A/c 1,500
(balancing figure)
By bad debts A/c 300
By sales return A/c 800
By bills receivable 6,100
By balance c/d 10,800
67,800 67,800
 Total Sales = 100,000 + 56,400 = 1,56,400
 Example contd.
Creditors Account

Particulars Rs. Particulars Rs.

To cash/bank A/c 25,100 By balance b/d 6,800
To discount received A/c 300 By Purchases A/c 27,700
(balancing figure)
To purchases return A/c 600
To bills payable A/c 3,100
To balance c/d 5,400
34,500 34,500

 Total Purchases = 50,000 + 27,700 = 77,700

 Useful Formulae
 COGS = Opening stock + net purchases + direct
expenses – closing stock
 COGS = Net Sales – Gross Profit
 Net Purchases = Total Purchases – Purchase Return
 Total Purchase = Cash Purchase + Credit Purchase
 Net Sales = Total Sales – Sales Return
 Calculation of Opening
Stock and Closing Stock
 We need to make the trading A/c and find the
required value by the balancing figure.
Particulars Amount Particulars Amount
To Opening Stock By Net Sales
To Net Purchases By Closing Stock
To Direct Expenses
To Gross Profit (balance) By Gross loss (balance)
 Example
 Calculate the value of opening stock:

Particulars Rs. Particulars Rs.

Purchases 2,20,000 Wages 7,000
Sales 3,60,000 Carriage outwards 6,000
Closing stock 40,000 Rate of gross profit on 50%
cost of goods sold
 Example contd.
 We need six things for trading account:
i. Opening stock
ii. Closing stock
iii. Net purchases
iv. Net Sales
v. Direct expenses
vi. Gross Profit/loss

If 5 of them are given, 6th can be ascertained as a balancing figure.

 Example contd.
 Total sales = 360,000

 Let the COGS be x

Since the profit on COGS is 50%, profit = 50% of x = 0.5x

 x + 0.5x = 360,000

 1.5x = 360,000

 x = 240,000

i.e., COGS = 240,000 and profit = 120,000

 Example contd.
 Memorandum Trading Account
Particulars Rs. Particulars Rs.
To opening stock 53,000 By Sales A/c 3,60,000
(balancing figure)
To purchases A/c 2,20,000 By Closing Stock A/c 40,000
To wages A/c 7,000
To gross profit c/d 120,000
4,00,000 4,00,000

So, opening stock is Rs. 53,000

 Example
 From the following information, ascertain the
closing stock.
Particulars Rs. Particulars Rs.
Purchases 35,000 Indirect expenses 7,000
Sales 50,000 Rate of gross profit on 1/3rd
cost of goods sold
Opening stock 10,000
 Example contd.
 When direct expenses are not given, we take them as
zero.
 Indirect expenses go to P&L A/c, so they are irrelevant
for this question.
 We need to find profit as the 5th element of trading
account, and then find closing stock using balancing
figure.
 Example contd.
 Sales = 50,000

 Let the COGS be x, which means profit = x/3

 x + x/3 = 50,000

 4x/3 = 50,000

 x = 37,500

 Profit = 12,500
 Example contd.
 Memorandum Trading Account

Particulars Rs. Particulars Rs.

To opening stock 10,000 By sales 50,000
To purchases 35,000 By closing stock (balance) 7,500
To gross profit 12,500

So, closing stock is Rs. 7,500

 A A B

C B B C A C