Recording Business Transactions and Financial Analysis of Anne's Business

This report provides information on recording business transactions, preparing financial statements, and conducting financial analysis of Anne's business. It includes journal entries, ledger accounts, trial balance, income statement, and balance sheet. The report also computes liquidity, profitability, and effectiveness ratios to evaluate the performance of the business.

Portfolio 2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ASSIGNMENT 2.............................................................................................................................2
PART A...........................................................................................................................................2
a) Preparing double entry system to record transaction in journal entries..................................2
b) illustrating below ledge account to get opening balance........................................................6
c) Formulating Trial balance as at 31st October 2021...............................................................17
d) Preparing Income Statement for the period ended 31st October 2021..................................17
e) Formulating balance sheet as at 31st October 2021..............................................................18
f) Writing letter..........................................................................................................................20
PART B.........................................................................................................................................21
a) Determination of ratios..........................................................................................................21
b.................................................................................................................................................24
CONCLUSION..............................................................................................................................25
REFERENCES..............................................................................................................................27

INTRODUCTION
Recording business transaction is one of the significant component that is one of the crucial
component that is helpful is gaining the information about the conducted commercial activities
in turn better approach for decision can be made. It is based on double entry system that records
the transaction in two accounts so that overall picture of organizational performance can be
derived. The current report will provide significant information regarding the aspects like
recording transaction in journal entries, bring opening balance from ledge, formulating trial
balance, income statement and financial position. These largely play role in providing crucial
information that aids in ascertaining overall performance of company. It will comprise
computation of ratio in order to evaluate performance of organization on the basis of this
analysis technique.
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ASSIGNMENT 2
PART A
a) Preparing double entry system to record transaction in journal entries
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b) illustrating below ledge account to get opening balance
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c) Formulating Trial balance as at 31st October 2021
d) Preparing Income Statement for the period ended 31st October 2021
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Income statement is
helpful in ascertaining the overall expenditure conducted by the company in direct and indirect
form and comprise details of gain earned throughout the specific period of time. It is one of the
main income statement that contribute in obtaining proper level of information that can lead firm
towards strategic planning. From the evaluation of above provided information it can be
interpreted that the expenses that are executed by the firm for achieving the profitability involves
rent of flat, repairs of printer, etc. and obtained the indirect income such from the rent. On the
basis of illustrated expenses, it can be specified that company is unable to generate profitability
and resulted into net losses. There is requirement to make alteration for improving the overall
performance of enterprise.
e) Formulating balance sheet as at 31st October 2021
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Financial position provides summary of particular year’s performance as at the end of the
period. This is considered to be one of the crucial income statement that contribute in achieving
summarized details of complex commercial transactions (Asutay, Wang and Avdukic, , 2021).
On the basis of give information regarding specified year’s performance which has been
formulated by taking accounting equation into consideration. Present firm is possessing assets
such as current & fixed that includes flat, computer, cash, closing stock, etc. on the other side,
there is liabilities which is distinct between short and long term. There is only short term debt
and no long term transaction of borrowings. On the basis of provided details it can be mentioned
that there is low effectiveness.
f) Writing letter
To Linda
Subject: Articulating concern related with withdrawals for holidays
In the present working environment there are number of factors which are required to be taken
into consideration for evaluating the performance of company. For this purpose, taking both
internal and external aspect so that depth understanding about the organizational performance
can be achieved. From the evaluation of given information regarding the business performance
which can be properly exerted by evaluating income and balance sheet. Income statement
prepared for the year is indicating that there is loss which has been obtained due to ineffective
management of transaction. It is reflecting that how ineffective particular company is managing
the operational practices (Grassetti, Mammana and Michetti, 2022). Balance sheet is presenting
that company is not effectively coordinating with prevailing circumstances as liquidity is less.
There is involvement of withdrawal for the personal holiday that is declining the capital.
It is important for the organization to pay attention on having significant information regarding
irrelevant activities through proper identification in turn eliminating aspect impacting adversely
can become possible. The present performance of firm is ineffective which is indicating that
there is low effectiveness in managing & monitoring the overall company’s activities. It is
reducing capital which is negative sign of management of operational activities. It is crucial for
the owner to understand significance of optimum utilization of resources to gain ability to
coordinate with hanging situations. Current circumstances of enterprise are not resulting into
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profitability due to careless behaviour of management & owner. In order to become successful
achieving competitive edge is highly important in respect to build better approach of growth &
development. For this purpose, it becomes essential to understand how organization can make
suitable course of action to obtain competitive benefit to deal with prevailing scenarios in
effectual manner. As being small firm it can be identified that company leads towards success
only better approach for managing resources via ensuring elimination of non-crucial expenditure
to derive profitability & sustainability. In addition to this it can be interpreted that concern for
not making withdrawal should be provided to become able to deal with competitive scenarios
in higher positive & stable pattern.
PART B
a) Determination of ratios
Ratio analysis is one of the technique that is helpful in gaining data in summarized
manner via paying attention on highlighting crucial factors. The ratios computed are as
follows:
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b
From the evaluation of above illustrated table it can be identified that there are several
metrics which is helpful in assessing particular aspect. On the basis of given details
regarding profitability ratio such as gross and net it can be identified that performance of
company is good. Gross profitability is helpful in evaluating that how effectively
organization is making profits via declining cost of goods sold. In addition to this, the
derived results from computation such as 14%. It can be compared with ideal and
competitors average which is helpful in understanding that particular company has good
performance than mentioned parties. Net profitability is indicator of ability of generating
profits via making greater amount sale. Competitors results is less than Anne’s
organizational NP margin as it is -4%. It is negative and lower than standard benchmarking
established by industry which is approx. 20%. On the basis of this, it can be identified that
present firm is having ineffective financial condition in terms of profitability.
For ascertaining the organizational performance in monetary terms it is important for
the company to concentrate on estimating liquidity ratios. This is concerned with assessing
how effectively business is possessing cash & equivalent resources to overcome the current
liabilities. It can be measured by current & quick ratios so that depth understanding about
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organizational performance can be derived (Lalithchandra, 2021). On the basis of calculated
figures such as 3.08 and 3.014 times for current and quick ratio respectively. It can be
identified that these are upper than ideal benchmarking established to have proper insights.
Current ratio of competitors is less than Anne’s enterprise performance which is reflecting
its more position to deal with current liabilities. The main reason behind this is that there is
availability of current assets such as debtors, closing stock, etc. Quick ratio of similar
organization is nearby ideal margin set to analyse that is showing lower ability of Anne’s
business to manage the functioning of resources. With help of given information, it can be
specified that there is need to make changes to up bring the overall organizational
performance. It can be exerted by taking the course of actions like making good credit
policy procedure, installing inventory management system, etc.
There are several types of stakeholders who pay attention on developing
understanding about the company through focusing on its operational liquidity and other
effectiveness. It can be evaluated by keeping attention on organizational factor such trade
receivable and payable (Haralayya, 2021). The trade receivable days’ aids in assessing how
better company can collect the funds from customer whom the goods ae sold on credit. It
contributes in building the liquidity position strong. Anne’s firm is having 10 days which
is lower than competitors average and presenting that company is highly effectively in
managing its credit relationship with customer and making collection. On the other side,
trade payable helps in showing how firm is paying off payments to suppliers which is
approx. 365 days and found be greater when compared to similar organization’s result. On
the basis of this it can be identified that financial condition is better than competitors but
possess few lacking areas which are required to be modified. Covid 19 has been served as
one of the most impacting situation which has influenced functioning of organizations.
Financial condition of Anne’s is indicating is performing well by overcoming such
challenges.
CONCLUSION
From the above report it can be summarized that recording transaction in books of
accounts is important for gaining information to prepare income & financial position
statement. These are main statement of financial that contribute in offering crucial information
that is helpful in formulating significant decision. In the current report much emphasis on
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formulating journal entries, ledge accounts, trial balance, income & financial statements are
presented. Ratios such as liquidity, profitability and effectiveness has been computed for
gaining details to evaluate performance. The financial health of Anne’s business is good but
there are few lacking areas which are need to be emphasized in order to make modifications.
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REFERENCES
Books and Journals
Asutay, M., Wang, Y. and Avdukic, A., 2021. Examining the performance of Islamic and
conventional stock indices: a comparative analysis. Asia-Pacific Financial Markets.
pp.1-29.
Grassetti, F., Mammana, C. and Michetti, E., 2022. A dynamical model for real economy and
finance. Mathematics and Financial Economics. pp.1-22.
Haralayya, B., 2021. Financial Statement Analysis of Shri Ram City Union Finance. Iconic
Research And Engineering Journals. 4(12). pp.183-196.
Lalithchandra, B.N., 2021. Liquidity Ratio: An Important Financial Metrics. Turkish Journal of
Computer and Mathematics Education (TURCOMAT). 12(2). pp.1113-1114.
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