lecture - 03

Advanced Financial Accounting

FIN-611 Mian Ahmad Farhan

Lecture-3Single 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 Amount Payment Amount

Opening balance

All receipts either relating capital or revenue receipts

xxx

xxx

All payments either relating capital or revenue payments

Closing balance

xxx

xxx

xxx xxx

Debtors Account

Increase in Debtors

Amount

Decrease in Debtors

Amount

Opening balance

Credit sales

xxx

xxx

Cash received from debtorsDiscount allowedBad debts Sales return Closing balance

xxxxxxxxxxxxxxx

xxx xxx

Creditors Account

Decrease in Creditors

Amount

Increase in Creditors

Amount

Cash paid to creditors Discount received Purchase return Closing balance

xxxxxxxxxxxx

Opening balance Credit purchase

xxxxxx

xxx xxx

Debit (Dr) and Credit (Cr) Rules

Debit (Dr) group

Assets Expenses

Credit (Cr) group

Owner’s equityLiabilityIncome

Increase Dr. Decrease Cr.

Increase Cr.

Decrease Dr.

Statement of Affairs It consists of previous year “Balance Sheet” items

Assets Amount (Rs)

Liabilities Amount (Rs)

Furniture & FixtureEquipmentsStockDebtorsPrepaid expensesBank balance Cash

xxxxxxxxxxxxxxxxxxxxx

Loan CreditorsPayable expensesOwner’s equity/Net Assets (Balancing figure)

xxxxxxxxxxxxxxx

xxx xxx

Year End Adjustments

It includes various adjustments relating to previous year.

Company Name Income Statement

For the year ended -------

Sales xxxLess Cost of goods sold

Opening Stock xxxAdd Purchases xxxLess Closing Stock xxx

xxxxxx

Less Operating expenses xxxAdd Other Income xxxGross Profit xxx

Sales Sales

Cash Sales Credit Sales Journal Entry

Debtors xxxSale xxx

Journal Entry Cash xxx

Sale xxx

Cash Book

Receipts Amount Payment Amount

Cash received from debtors

xxx

xxx xxx

Debtors Account

Increase in Debtors

Amount

Decrease in Debtors

Amount

Credit sales xxx Cash received from debtors

xxx

xxx xxx

Purchases

Purchases

Cash Purchase

Credit Purchase

Journal Entry Creditors xxx Purchase xxx

Journal Entry Purchase xxx

Cash xxx

Cash Book

Receipts Amount Payment Amount

Cash purchases 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. Cash based expenses 2. Expenses relating to receivables 3. Expenses relating to fixed assets

a). Depreciation b). Loss on disposal of an

assets

Cash Book

Receipts Amount Payment Amount

Expenses paid in cash xxx

xxx xxx

Cash Based Expenses

Expenses paid in cash during the year xxx

Less Opening balance of Accrued expenses xxxAdd Closing balance of Accrued expenses xxxAdd Opening balance of Prepaid expenses xxx

Less Closing balance of Prepaid expenses xxxxxx

Expenses Related to Receivable

1. Discount Allowed2. Bad debts 3. Provision for doubtful debts

Debtors account

Year end adjustment

Provision for Doubtful Debts1. When there is an increase in Provision it will

be charged as an expense. 2. When there is an decrease in Provision it will

becredited to the expense.

Operating Expenses

1. Cash based expenses 2. Expenses relating to receivables 3. Expenses relating to fixed assets

a). Depreciation b). Loss on disposal of an assets

Cash Account Debtors Account & Year end adjustment

Year end adjustment Cash Account

& Year end adjustment

Other Income

1. Incomes based on cash2. Incomes relating to payables 3. Incomes relating to fixed assets

Incomes Based on Cash

Cash received during the year xxxLess Opening balance of Accrued income xxxAdd Closing balance of Accrued income

xxxAdd Opening balance of advance income xxx

Less Closing balance of advance income xxx

xxx

Incomes Relating to Payables

Discount received Journal Entry Creditors xxx Income xxx

Income Relating to Fixed Assets

Profit on disposal of an Assets.