Recording Business Transactions and Computing Ratios for Anne's Business

This report focuses on recording business transactions and computing ratios for Anne's business. It includes journal, ledger, trial balance, income statement, financial position, and a letter to Linda. The report also analyzes Anne's business performance and the impact of COVID-19 outbreak on the ratios.

PROJECT 2 PART A &
PART B

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PROJECT 2.....................................................................................................................................2
PART A...........................................................................................................................................2
a) Using double entry system to record transaction in n T account.............................................2
b) formulating ledge account to bring opening balance..............................................................6
c) Preparing Trial balance as at 31st October 2021...................................................................17
d) Formulating Income Statement for the period ended 31st October 2021.............................18
e) Preparing Statement of Financial Position as at 31st October 2020......................................19
f) writing letter to Linda............................................................................................................19
PART B.........................................................................................................................................20
a) Computing ratios...................................................................................................................20
b) analyisng performance of Anne’s performance and impact of Covid -19 outbreak ratios. .24
CONCLIUSION............................................................................................................................25
REFERENCES..............................................................................................................................26

INTRODUCTION
Recording business transaction is related with summarizing, analysing and interpreting the
business activities in order to offer significant information regarding firm. The present working
environment has changed which require firm to focus on developing significant strategy based
on the data so that appropriate ability to deal with commercial practice can become possible.
There are several areas of business which require firm to focus on having proper level of
decision in respect to gain the competitive edge which can be exerted by having effective
recording of transaction. The main reason behind keeping record is that there are several type of
transaction which are implemented by company with various parties and remembering each
details is possible in turn having this can contribute in accomplishing particular objective the
current report will include journal, ledger, trail balance, income and financial position and letter
to Linda. Current study will emphasize on computing ratios and interpreting information for
evaluating organizational performance.
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PROJECT 2
PART A
a) Using double entry system to record transaction in n T account
2

3

4

5

b) formulating ledge account to bring opening balance
6

7

8

9

10

11

12

13

14

15

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c) Preparing Trial balance as at 31st October 2021
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d) Formulating Income Statement for the period ended 31st October 2021
Income statement is concerned wit involving the information regarding the income and
the expenditure conducted by company for the particular period of time (Arslan, 2021). It aids in
gaining information regarding cost of goods sold, gross and net profitability or loss. This allows
to get insights regarding functioning of business in terms of revenue and net profitability.
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e) Preparing Statement of Financial Position as at 31st October 2020
Balance sheet is one of the crucial statement which provides summary of company’s
performance through applying accounting equation in which assets are equal to liabilities plus
equities. On the basis of this equation the balance sheet has been prepared for gaining details of
company’s financial performance.
f) writing letter to Linda
To Linda
Subject: For concern regarding holiday
For becoming successful in the current competitive environment paying attention on
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developing improvement measure is important Is important. There are several lacking areas’
which impact the performance of enterprise in both financial and non-monetary aspect. In
addition to this, small business does not possess the enough level of capability which forces
organization to concentrate on building sound strategy to grab opportunities. From the
evaluation of given information in the income and financial statement it can be articulated that
particular firm is not performing well which require to focus on identifying the crucial causes
behind it. On the basis of this, it can be interpreted that current the organization is having
lacking areas which is resulting into loss. There are several expenses which are incurred with
intention of obtaining profitability but due to higher cost of goods sold it has experienced loss.
Various components are determinants of growth & development., 2018). The
current evaluation is reflecting that firm is having low effectiveness in meeting its organizational
objective. One of the crucial reason which has been evaluated is that there are few irrelevant
transactions that has adverse impact on the smooth functioning of company. It involve
withdrawal of fund for holiday that has declined the available capital and efficiency to meet
requirements of business. In addition to this, it can be stated that organization is pertaining to
loss due to lower operational efficiency which has been caused by owner less attention on
development. There is involvement of irrelevant expenditure which six hampering position of
organization in longer run. For this purpose, it is recommended to Linda to emphasize on
assessing which area lacking areas and reason behind those. Eliminating irrelevant expenditure
can boost overall functioning of firm and help in building optimum utilization of resources
approach to get the higher profitability. On the basis of this it can be identified that withdrawal
for holiday is hampering the performance of organization which is need to be taken into
consideration so that higher level of improvement can be made. This will help in making
proper level of improvement in lacking areas to boost organizational performance.
Sincerely,
PART B
a) Computing ratios
There are several types of ratios which are computed by several parties so that crucial
details to make strategic decision. It involves profitability, liquidity and efficiency ratios in turn
depths insights to make significant analysis can become possible (Goudeket, 2020). For the
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analysis of Anne’s business much emphasis has been given on computing gross, net
profitability, current, quick trade receivable and payable ratios which are as follows:
From the above computed ratios it can be identified that it has higher profitability. Gross
profit is related with declining cost for making higher sales revenue. GP of Anne’s business is
94% which is highly greater as compared to standard benchmarking. NP margin is earning
profitability 77% which is higher than ideal ratios.
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Liquidity ratios are cruciaol for ascertaining efefctivenes of company to deal with
prevailing resources in order to overcome short term debt. Curret ratio providesa ssistance in
evalauting ability of firm to pay off short term liabilities with help of curret assets. The deived
result for the preset firm is 3.08 times which is more than ideal margin that lies between 1.2-
1.5 times. Quick ratio is helpful ina ssessing the effectiveness of firm to handle current
liabilities wih help of cash resources. The paticualr ratio for the present firm is 3.014 time that
need to be improved.
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This are two metrics that contributes in etsimatimng how effectively company ispaying
off payment to suppliers by computing trade payble days that are 26 days. In addition to this,
trade receivable is helpful in assessing how well company is receiving colleting funds for the
good sold on credit which is 10 day s which psoutive sign of maintaining effectiev relationship
with stakeholders.
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b) analyisng performance of Anne’s performance and impact of Covid -19 outbreak ratios
From the evaluation of the given information regarding performance of Anne’s business
with help of ratio it can be analysed that company is performing good but there are few lacking
areas which are needed to be improved. profitability of company in terms of gross & net are 94
and 77% respectively for the year 2021. On the basis of comparing the results with competitor
outcome for the period 2019, 2020 and 2021 it can be specified that firm is having higher ability
of generating profit. The gross profitability is higher due to its enough capability of declining
cost and inclining revenue as compared to competitors’ performance. Net profitability of Anne’s
business is as compared to competitors is greater which is reflecting good financial position.
On the basis of computed ratios like current it can be ascertained that how well business is
performing by making greater ability to overcome current liabilities. On the other side, as
compared to competitors’ current ratios it can be identified that there is lack of efficiency in
making capital expenditure due to ineffective planning for current assets. There is need to make
improvement by making crucial course of action such eliminating over or under stocking,
making effective credit policy, etc. (Maheshwari, Maheshwari and Maheshwari, 2021). In
addition to this, having appropriate level of quick ratio is important which is needed to be
declined to cope up with competitors’ performance. As compared to the quick ratio of
competitors it can be identified that firm need to decrease this to uplift performance of firm.
From the analysis of provided details regarding efficiency ratio it can be motioned that
company is having effectiveness in collecting funds from the customers than days taken by
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competitors. Trade receivable are indicating good credit policy and relationship building with
customers. Other side, trade payable days are greater than days taken by similar organization of
sector which can be improved by having effective policy so that greater amount of credibility
in sector can become possible. On the basis of given information related with financial
performance of company it can be specified that Anne’s business is performing good but require
certain changes to uplift performance of enterprise
Covid 19 is one of the adverse situation that has adversely impacted the functioning of
organization (Setiany, 2021). In addition to this, it can be articulated that firm has good
performance irrespective of getting impacted by this pandemic. There are several number of
course of action which are applied by firm to improve the performance of firm so that higher
profitability and stability can be maintained. On the basis of this, it can be specified that Annals
company is enough capable of achieving the eliding position in industry by overcoming impact
of external factors and managing resources in effective manner.
CONCLIUSION
From the above report it can be concluded that recording business transaction is crucial
for gaining the information to make strategic decision. In addition to this, current report has
comprised journal, ledger, trail balance, financial position and income statement. From the
evaluation of ratios, it can be specified that current performance of firm is effective which is
helpful in accomplishing leading position in sector.
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REFERENCES
Books and Journals
Arslan, Ö., 2021. Modern Approaches, Recording Methods, and International Regulations on
Public Accounting. In Contemporary Issues in Public Sector Accounting and Auditing.
Emerald Publishing Limited.
Goudeket, A., 2020, September. Fluctuating price levels in relation to accounts. In The Sixth
International Congress on Accounting 1952 (pp. 73-79). Routledge.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Reid, W., 2018. The meaning of company accounts. Routledge.
Setiany, E., 2021. The Effect of Investment, Free Cash Flow, Earnings Management, and
Interest Coverage Ratio on Financial Distress. Journal of Social Science. 2(1). pp.67-73.
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