Recording Business Transactions and Evaluating Performance of Anne's Business

This report includes the preparation of financial statements such as journal entries, ledger, trial balance, income statement, and financial position statement. It also calculates ratios for Anne's business to evaluate its performance. The report concludes that recording business transactions is important for making sound decisions and that Anne's business is performing well but has certain areas for improvement.

ASSESSMENT 2 PART

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ASSESSMENT 2.............................................................................................................................1
PART A...........................................................................................................................................1
a) Recording the transactions in T account...............................................................................1
c) Formulating Trial balance as at 31st October 2021...........................................................17
d) Preparing income statement for the period ended 31st October 2021...............................18
e) Formulating financial position as at 31st October 2021.....................................................19
f) Writing letter to Linda for her query regarding holiday.....................................................20
PART B.........................................................................................................................................21
Calculating ratios for Anne’s business......................................................................................21
Evaluating the performance of company...................................................................................25
CONCLUSION..............................................................................................................................26
REFERENCES..............................................................................................................................27

INTRODUCTION
Recording business transaction is helpful in keeping information regarding the commercial
transaction conducted by the company. In the current era, requirement regarding keeping
business process flexible with coordinating with the prevailing data so that significant decision
can be made. The current report will highlight the information related with journal entries, ledge,
trail balance, financial position, income statement and writing letter. This will give emphasis on
analysing the performance of organization via calculating the ratios.
ASSESSMENT 2
PART A
a) Recording the transactions in T account
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c) Formulating Trial balance as at 31st October 2021
Particular Debit
£
Credit
£
Bank A/c 8030
Cash A/c 7340
Flat A/c 45000
Capital A/c 71800
Purchase A/c 5150
Purchase Return A/c 250
Home Ltd A/c 5150
Rent of office flat A/c 850
Computer A/c 2500
Printer A/c 200
Sales A/c 5600
Repairs of printer A/c 110
Rent A/c 800
Rayan A/c 150
Wages A/c 820
Withdrawal A/c 1200
car A/c 12000
Total 83350 83350
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d) Preparing income statement for the period ended 31st October 2021
Particulars Amount £ Amount £
Sales A/c 5600
+ opening stock
+ purchase 5400
- purchase return 250
- closing stock 320 4830
Gross profit 770
Add: rent received 800
1570
Indirect expenses
Rent of office flat A/c 850
Repairs of printer A/c 110
Wages A/c 820 1780
Net loss 210
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e) Formulating financial position as at 31st October 2021
Particulars Amount £ Amount £
Non current assets
flat A/c 45000
Computer A/c 2500
Printer A/c 200
car A/c 12000 59700
Current assets
Bank A/c 8030
Cash A/c 7340
Rayan A/c 150
Closing stock 320 15840
Less: Current liability
Home Ltd A/c 5150
Non Current liability 0
Net assets 70390
Owners equity
Capital A/c 71800
-withdrawal 1200
- net loss 210
Total liabilities and equity 70390
f) Writing letter to Linda for her query regarding holiday
To Linda,
Subject: explanation regarding the concern of the holiday
There are several type of expenditure that are conducted by the business for having smooth
functioning of the company. In order to become successful there are few requirements which are
required to be coordinated by the owner for ensuring smooth processing (Cai, 2021). In addition
to this, recording business transaction allows to obtain the significant details that are crucial for
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analysing performance in turn strategic decision can be taken.
From the evaluation of the prepared financial statements of the firm it can be interpreted that
there is low effectiveness in managing the overall performance. The main reason behind this can
be seen that company is obtaining loss from its operational activities for the specified period of
time. There are larger number of requirements which are faced by enterprise and needed to be
accomplished for gaining greater amount of stability and effectiveness. there are several reasons
that has resulted into the ineffective outcomes but the one of the significant cause which has been
identified improper utilization of available resources (PURI and SINGH, 2021). Withdrawal of
business fund for conducting holiday is found be adversely impacting the company which is
required to be understood for having depth understanding with regards to optimum utilization of
funds.
For achieving the desirable position in sector it is highly crucial for the recognition to focus on
recognizing the lacking areas so that higher effectiveness in meeting organizational objectives.
With respect to this, it is important to understand that eliminating usage of fund for holiday can
permit to take crucial decisions which are important for developing strong position in sector. For
this purpose it becomes crucial for the company owner to give emphasis on avoiding such
irrelevant expenses so that higher profitability to maintain the productiveness. On the basis of
this, it is suggested to manage the resources effectively to accomplish the objective of higher
profitability & stability.
PART B
Calculating ratios for Anne’s business
Profitability ratio
Gross profit is one of the significant ratio that is helpful in assessing how effectively
company can generate the profitability with declining the prevailing cost of goods sold. Net
profit is helpful in analysing the ratio that assist in generating profitability by making greater
amount of sales.
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Liquidity ratio
It is helpful in assessing how business is performing in terms of overcoming its short
term liabilities. It has been computed by estimating current and quick ratio so that significant
level of insights to overcome the short term debt with help of cash & equaling assets. This aids
in ascertaining how effectively business is managing its financial liquidity in the sector so that
greater amount of productiveness can be obtained by making decision on the basis of such
results.
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Efficiency Ratio
Effectiveness of company plays crucial role in impacting the organizational overall
performance. The main reason behind this is to obtain information that how well company is
managing its payment and collection in order to have smooth processing. There are several
types of stakeholders that require the information related with its efficiency to overcome short
term debts so that higher profit bitable decision can be made.
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Evaluating the performance of company
Ratios are helpful in evaluating the performance of the company by focusing on the
several aspects (Palepu and et.al., 2020). In order to become the successful in the current
competitive environment it is largely important for the organization to focus on evaluating its
current performance with past and competitors. It allows to derive the details which can help in
boosting the significant factor that can lead firm towards success.
From the evaluation of provided information regarding net profitability margin that it
77% which is greater than the ideal ratio. It is helpful in assessing that how effectively company
is generating profitability with making sales. From the comparison with competitor’s net
profitability it can be identified that they possess less profitability. On the basis of this it can be
identified that Anne’s business is effectively functioning.
Gross profitability margin of the business is 94% that is greater than 20% and competitors
average performance. The competitors are having less margin of gross profitability which is
showing good sign of growth & development. It is helpful in realizing that cost structure of
business is effective which is boosting the growth trend in gross profitability (Easton and et.al.,
2018). On the basis of given information regarding the profitability perspective it can be
identified that firm has good performance.
Current ratio of Anne’s business is 3.08 times which is higher than the standard
benchmarking set for the company is negative indicator management. Higher current assets do
not allow the firm to manage its capital expenditure that is essential for the growth of business
(Maheshwari, Maheshwari and Maheshwari, 2021). It is important for the enterprise to give
emphasis on having crucial performance in order to manage its overall performance. For this
purpose, it is important for the firm to maintain adequate level of current ratio. From the
comparison with similar organization’s performance it can be specified that firm is having
higher effectiveness than them to overcome short term liabilities.
Quick ratio is aids in ascertaining the cash & equivalent position of company to handle
the short term liabilities for maintaining credibility & sustainability in sector. The present
enterprise for the current year is having 3.014 time that is greater than shown information of
competitor. They are having less effectiveness as compared to the Anne’s business but
possessing appropriate level of outcome. The specified organization should pay attention on
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developing the crucial strategy for declining the prevailing results so that higher effectiveness to
deal with similar organization can become possible.
Trade receivable and payable are the two metric that aids in estimating the efficiency of
the company which allow to gain the information regarding way of dealing with debtors and
creditors (Ginting, 2021). From the evaluation of the given computed trade receivable it can be
identified that in 10 days’ company collect payments from the customer. The competitors’
performance for the 2019, 2020 & 2021 it can be analysed that Anne’s organization is having
good performance.
Trade payable allows to analyse that how effectively it is paying off payments to
suppliers. The company is taking 25.51 days which is found be greater as other companies
operating ins similar organization is possessing less days. On the basis of this, it can be
identified that Anne’s business is performing good in terms of financial aspects. There are few
lacking areas which are required to be improved for having competitive benefits.
CONCLUSION
From the above report it can be concluded that recording business transaction is
important for having depth understanding o the prevailing factors so that sound decision can be
made. In the current report journal, ledger, trail balance, financial income and position statement
has bene prepared. It has been analysed that withdrawal for drawing hamper the functioning of
business so that need to be declined. The current study has given emphasis on developing
significant understanding by calculating ratios. It emphasis that organization is performing good
but possessing certain lacking areas such as higher current & trade payable ration which is
required to be degreased of obtaining smooth functioning.
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REFERENCES
Books and Journals
Cai, C. W., 2021. Triple‐entry accounting with blockchain: How far have we come?. Accounting
& Finance. 61(1). pp.71-93.
Easton, P. D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Ginting, E. S., 2021. Ratio-Based Financial Performance Analysis of PT. Mustika Ratu,
Tbk. Enrichment: Journal of Management. 11(2). pp.456-462.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Palepu, K. G and et.al., 2020. Business analysis and valuation: Using financial statements.
Cengage AU.
PURI, N. and SINGH, H., 2021. Current Trends in Finance in the Context of Adoption of
Principle-Based Accounting Standards in Accounting Education. Financial Intelligence in
Human Resources Management: New Directions and Applications for Industry 4.0.
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