Advanced financial accounting - Lecture 3: Single entry (Conversion method). The main topics covered in this chapter include: necessary documents required in conversion method; cash book; total debtors account; total creditors account; statement of affairs relating to opening date; year end adjustment;... Please refer to the lecture for details!
Advanced Financial Accounting FIN611 Mian Ahmad Farhan Lecture3 Single Entry (Conversion Method) Necessary Documents Required in Conversion Method Cash book Total Debtors account Total Creditors account Statement of affairs relating to opening date Year end adjustment Cash Book Receipts Amount Payment Amount Opening balance xxx All payments either relating capital or revenue payments xxx Closing balance xxx All receipts either relating capital or revenue receipts xxx xxx xxx Debtors Account Increase in Debtors Amount Decrease in Debtors Opening balance xxx Credit sales xxx xxx Cash received from debtors Discount allowed Bad debts Sales return Closing balance Amount 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 xxx xxx xxx Opening balance Credit purchase xxx Debit (Dr) and Credit (Cr) Rules Debit (Dr) group Assets Expenses Increase Dr Decrease Cr Credit (Cr) group Owner’s 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 Owner’s 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 xxx Add Purchases xxx Less Closing Stock xxx Less Operating expenses Add Other Income Gross Profit xxx xxx xxx xxx xxx xxx Sales Sales Cash Sales Credit Sales Journal Entry Journal Entry Cash xxx Debtors xxx Sale xxx Sale xxx Debtors Account Increase in Debtors Amount Decrease in Debtors Amount Credit sales xxx xxx xxx Cash received from debtors xxx Purchases Purchases Cash Purchase Credit Purchase Journal Entry Journal Entry Purchase xxx Creditors xxx Cash xxx Purchase xxx Cash Book Receipts Amount xxx Payment Amount Cash purchases xxx xxx Creditors Account Decrease in Creditors Amount Increase in Creditors Credit purchase xxx Amount xxx xxx Closing Stock Closing stock information is available at year end balance sheet Operating Expenses 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 xxx Payment Amount Expenses paid in cash 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 Discount Allowed Debtors account Bad debts Provision for doubtful debts Year end adjustment Provision for Doubtful Debts 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 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 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 xxx Add Opening balance of advance income Less Closing balance of advance income 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. ... Gross Profit xxx xxx xxx xxx xxx xxx Sales Sales Cash Sales Credit Sales Journal? ?Entry? ? Journal? ?Entry? ? Cash xxx Debtors xxx Sale xxx Sale xxx Cash Book Receipts Amount Cash received from ... Cash received from debtors xxx Purchases Purchases Cash Purchase Credit Purchase Journal? ?Entry? ? Journal? ?Entry? ? Purchase xxx Creditors xxx Cash xxx Purchase xxx Cash Book Receipts ... Less Closing balance of advance income xxx xxx xxx xxx xxx Incomes Relating to Payables Journal? ?Entry? ? Discount received Creditors xxx Income xxx Income Relating to Fixed Assets