Financial Accounting, SS 1, Week 2
Topic: Preparation of final account from a set of incomplete records:
Conversion of single entry to double entry
Business organization whose books are being kept under the single entry system may decide to improve the system of accounting by introducing a complete double entry system.it is possible for complete records to be reconstructed by applying the principle of double entry to the information available. The books necessary may include:
- Sales ledger
- Purchase ledger
- Day book
- Assets and liabilities account
- Nominal accounts.
The trial balance may be extracted to show the accuracy of the postings. There are no specific set of rules to be followed except a proper understanding of the principle of double entry.
Accounting Entries
In preparing final accounts from incomplete records, the following operations must be followed:
- Preparation of a statement of affairs to calculate the capital
- Analysis of the cash book
- Reconstruction of those accounts that are necessary to find figures not given in the question. Analysis of purchase and sales control account to get both purchases and sales respectively.
- Preparation of any other required working schedule e.g reconstruction of nominal account.
- Preparation of trading,profit and loss account
- Balance sheet.
1. Preparation of statement of affairs
This is a balance sheet with the list of assets and liabilities.the difference between the assets and liabilities will be the capital.
2. Analysis of both cash book
The cash book must be prepared from the information deducted from the pass book,pay in slip.the cash book appears thus;
Receipt Payments
Receipt b/f x drawings x
Receipt from customers x expenses x
Fixed asset purchase x
Suppliers x
Balance c/d x
3. Reconstruct the control account: reconstruct the total debtor and the total creditor control accounts to calculate sales and purchases figures respectively. Read the control account for more understanding
4. Preparation of any other required working schedules: e.g expenses that will be charged to the profit and loss must be calculated.
5. Preparation of trading,profit and loss account: the trading,profit and loss will be prepared, since the purchases and sales figures have been arrived at using the control account; the gross and net profit must be ascertained.the principles follow the normal procedures for trading accounts.
6. Preparation of balance sheet: the balance sheet can now be prepared using the closing balances of assets and liabilities and the capital calculated in the statement of affairs.
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