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Conversion Method 🕵️‍♂️

Goal: To prepare a proper Trading and P&L Account and Balance Sheet. Problem: We are missing key figures like Total Sales, Total Purchases, Opening Stock, etc. Solution: We act like detectives and find the missing figures using Memorandum Accounts.

Key Missing Figures & How to Find Them 🔍

  1. Credit Sales:

    • Prepare Total Debtors Account.
    • Formula: Closing Debtors + Cash Received - Opening Debtors = Credit Sales.

  2. Credit Purchases:

    • Prepare Total Creditors Account.
    • Formula: Closing Creditors + Cash Paid - Opening Creditors = Credit Purchases.

  3. Opening Capital:

    • Prepare Opening Statement of Affairs.

  4. Cash Balance:

    • Prepare Cash Book Summary.

  5. Stock:

    • Usually given. If not, use Gross Profit Ratio.

Steps to Convert 🛠️

  1. Prepare Statement of Affairs (Opening) -> Find Opening Capital.
  2. Prepare Total Debtors A/c -> Find Credit Sales.
  3. Prepare Total Creditors A/c -> Find Credit Purchases.
  4. Prepare Cash/Bank A/c -> Find missing cash/drawings.
  5. Now you have Sales, Purchases, Capital.
  6. Prepare Final Accounts (Trading, P&L, Balance Sheet) as usual!
Total Sales

Total Sales = Cash Sales (from Cash Book) + Credit Sales (from Debtors A/c). Don't forget to add Cash Sales!

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. Total Debtors Account is prepared to find out:

Cash Sales
Credit Sales
Total Sales
Bad Debts

💡 Final Wisdom: "This is real accounting detective work. You take fragments of evidence (Debtors, Cash) and reconstruct the crime scene (Final Accounts)!" 🧩

Next up: Practical Problems - Let's solve a full sum! 🧮

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