Accounting Assessment 2: Transactions, Trial Balance, Income Statement, Balance Sheet, Ratio Analysis, and Covid-19 Impact

This report covers Accounting Assessment 2 which includes presenting double entry record the transactions in T-accounts, drafting a trial balance, preparing an income statement, drafting a balance sheet, determining ratios, evaluating performance, and impact of Covid-19 on Anne's business.

Assessment 2

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
PART A......................................................................................................................................3
a) Presenting double entry record the transactions in T-accounts..........................................3
b) Balance the accounts and bring down an opening balance................................................3
c) Drafting a trial balance of Linda ltd on 31st October 2021...............................................3
d) Preparing an Income Statement for the period ended on 31st October 2021....................3
e) Drafting a balance sheet on 31st October 2020.................................................................3
f) Writing a brief letter to Linda ltd explaining aspects related to drawing...........................3
PART B......................................................................................................................................3
a) Determining ratios for Anne’s business............................................................................3
b) Evaluating performance of Anne’s business on the basis of ratios and impact on covid
19 on it....................................................................................................................................6
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................9

INTRODUCTION
Accounting is concerned with the recording of daily transactions that associated with
business. All kind of business units such as sole proprietor, public & private limited firm lays
high level of emphasis on maintaining records. This in turn helps business entity in assessing
financial position and performance at the end of an accounting year. The current report will
highlight income, expenses, assets and liabilities of Linda ltd during the concerned period. It
also entails how ratio analysis tool can be used for evaluating company’s performance from
several perspectives.
PART A
a) Presenting double entry record the transactions in T-accounts

b) Balance the accounts and bring down an opening balance

c) Drafting a trial balance of Linda ltd on 31st October 2021

d) Preparing an Income Statement for the period ended on 31st October 2021

e) Drafting a balance sheet on 31st October 2020
f) Writing a brief letter to Linda ltd explaining aspects related to drawing
To Linda
Subject: letter briefing relating to drawings
With respect to the drawing concerning the small business it is being treated as decrease from
the capital. The reason behind this fact is that the drawings are being referred to as the
personal expenses of the business owner. On the other hand, the capital is the amount of
money which the person has brought within the business. And in case any of money or the
goods and services being withdrawn for the personal use then it is treated as drawing. Thus
the amount being withdrawn is deducted from the amount brought in by the owner that is the

capital. The amount concerning the holiday is also drawing because the owner has withdrawn
the money for booking the hotel and flights in Scotland for the holiday (Umar, 2019). The
holiday is the personal expense of lender and because of this it will be treated as drawings.
Hence, it will be deducted from the capital in the balance sheet and will be treated as an
expense of the company. This payment of the holiday cannot be treated as the expense of the
business because this expense has not been undertaken for the benefit of the company. Rather
the expense is being incurred in order to fulfil the need of holiday of the business owner.
Thus it will be treated as drawings and not the expense of the business.
PART B
a) Determining ratios for Anne’s business

b) Evaluating performance of Anne’s business on the basis of ratios and impact on covid 19
on it
Ratio analysis is one of the significant technique for analysing the performance of
company that largely contribute in making significant decision (Ratio Analysis, 2021). There
are different types of stakeholders such as investors, creditors, suppliers, competitors, etc.
who pay attention on evaluating the performance of company in turn sound formulation of
decision can become possible. From the computed figures such as profitability, liquidity and
efficiency it can be overall evaluation of company’s performance can be done.
Profitability ratios such as gross and net profit it can be said that company is
performing good (Rustagi, 2021). Gross profit is concerned with ability of generating
profitability by reducing cost of goods sold. The derived outcome for the mentioned period
is 94% which is higher than established benchmarking that is approx. 65%. On the basis of
this, it can be identified that company’s performance is higher than ideal and competitors
average which is favourable indicator of performance of company. Net profitability is related
with analysing how effectively company can make revenue to generate profits. The above

illustrated table is reflecting that Anne’s company has NP of 77% which is greater than
competitors average presented for respective three years such as 2019, 2020 and 2021. This is
helpful in evaluating that business is possessing effective ability to make profits to gain
objectives of firm.
Liquidity ratios such as current & quick has been ascertained that are capable of
estimating how effectively organization can utilize resources to overcome short term
liabilities. From the analysis of current ratio, it can be interpreted that firm is having 3.08
times assets than its short term liability. This aids in assessing that company has higher
efficiency that presented competitors performance as well leading from the idea
benchmarking established which is 1.5 times. Quick ratio of Anne’s business that is 3.104
times that is reflecting cash & equivalent resources than current liability which is sign of
stronger liquidity position than given details regarding similar organizations operating in
industry.
Trade receivable and payable ratios provides assistance in assessing efficiency of
organization (Easton and et.al., 2018). From the evaluation it can be mentioned that Anne’s
business is effective in collecting the payments from trader as takes 10 days which is lower
than average presented from competitor’s performance. Trade payable period taken by
particular organization is 25.51 days that is non effective as competitors as their current
outcome is 17 days. On the basis of this, it can be recognized that Anne’s business is
performing well but require few changes in order to uplift overall performance in sector.
Covid 19 is considered to be pandemic situation that has unfavourable impact on
commercial practices. It has led complications which became barrier for stability & ability
to generate profitability for organization. On the basis of given outcome, it can be said that
Anne’s business has performed good irrespective of getting impacted from this situation
which shows strong financial position of organization.
CONCLUSION
By summing up this report, it can be concluded that Linda Ltd generated profit during
October 2021. Further, by employing social media marketing as well as budgetary control
tools firm can enhance sales and exert control over expenses. This in turn leads high
profitability and helps in achieving goals. It can be seen in the report that Anne’s need to take

significant measures for improving performance from several perspectives such as
profitability, liquidity, efficiency etc.

REFERENCES
Books and Journals
Umar, U.H., 2019. A Basic Comprehensive Accounting Package for Musharakah:
Consolidation of Islamic and Conventional Practices. In Management of Shari’ah
Compliant Businesses (pp. 85-93). Springer, Cham.
Easton, P. D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Rustagi, R .P., 2021. Investment Analysis & Portfolio Management. Sultan Chand & Sons.
Online
Ratio Analysis. 2021. [Online]. Available through:
<https://www.accountingtools.com/articles/ratio-analysis.html >.