'Is it possible to prepare the profit and loss account and the balance sheet from the incomplete books of accounts kept by a trader'? Do you agree? Explain.
'Is it possible to prepare the profit and loss account and the balance sheet from the incomplete books of accounts kept by a trader'? Do you agree? Explain.
It is possible to prepare profit and loss account and balance sheet from incomplete book of accounts by a process known as conversion method. In this method, the incomplete records gets converted to double entry records. It is easy to convert some of the incomplete entries such as debtors, creditors, cash payments, cash sales and cash receipts as they are easily available. However, there will be some transactions for which details are not available. Still such details can be found using logic. Here are some transactions that are necessary for creating complete record.
1. Opening capital
2. Credit Purchases
3. Credit sales
4. Bills Payable accepted
5. Opening Capital
6. Payment to creditors
In some cases payment received from debtors and amount paid to creditors, for such cases it is essential to prepare debtor or creditor account to determine the values first. The final accounts can be prepared after these accounts are prepared.
It is possible to prepare profit and loss account and balance sheet from incomplete book of accounts by a process known as conversion method. In this method, the incomplete records gets converted to double entry records. It is easy to convert some of the incomplete entries such as debtors, creditors, cash payments, cash sales and cash receipts as they are easily available. However, there will be some transactions for which details are not available. Still such details can be found using logic. Here are some transactions that are necessary for creating complete record.
1. Opening capital
2. Credit Purchases
3. Credit sales
4. Bills Payable accepted
5. Opening Capital
6. Payment to creditors
In some cases payment received from debtors and amount paid to creditors, for such cases it is essential to prepare debtor or creditor account to determine the values first. The final accounts can be prepared after these accounts are prepared.
