Conversion Method : (Conversion of single entry into double entry system) :
If it is desired to calculate profit by preparing Trading and Profit and Loss account under single entry then it is called conversion method. Following steps are necessary to prepare Trading and Profit and Loss account and Balance Sheet from the incomplete information.
Step 1 Opening Statement of Affairs: Prepare statement of affairs in the beginning so as to calculate capital in the beginning.
Step 2 Other Accounts: Then prepare (i) Total debtors account, and (ii) Total Creditors account, to find out credit sales, credit purchases, creditors or debtors balance either in the beginning or at the end.
Step 3 Total sales and total purchase: After preparing these accounts, calculate
(1) Total sales, by adding cash sales and credit sales, and
(2) Total purchases by adding cash purchases and credit purchases.
Step 4 Final Account: Now prepare Trading, Profit and Loss account and Balance Sheet.