Recording Journal Entries and Financial Statements for Desklib

This article provides guidance on recording journal entries and preparing financial statements for Desklib, an online library for study material. It includes a detailed example of recording journal entries in T accounts, balancing accounts, preparing income statements, and formulating statements of financial position. The article also explains the importance of financial statements and how they can help organizations assess their financial health.

Resit project A2

TABLE OF CONTENTS
PART A...........................................................................................................................................1
a) Recording journal entries in T account...................................................................................1
b) Balancing the account and bringing down an opening balance .............................................2
c) Trial balance as at 30th September 2021................................................................................9
d) Preparing income Statement for the period ended 30th September 2021 ...........................10
e) Formulating statement of Financial Position as at 30th September 2021.............................11
PART B..........................................................................................................................................12
Calculating ratios .....................................................................................................................12
Analyzing the Paul's performance by comparing with competitors ........................................14
REFERENCES..............................................................................................................................16

PART A
a) Recording journal entries in T account
Date Particulars L.F Debit Credit
01/09/21 Bank A/c Dr. 24000
Cash A/c Dr. 8400
Computer A/c Dr. 1000
To capital A/c 33400
(Being capital invested in the
business)
02/09/21 Purchase A/c Dr. 900
To David A/c 900
(Being furniture purchased on credit)
03/09/21 High-speed Computer A/c Dr. 2000
To Bank A/c 2000
(Being high-speed computer
purchased by paying via cheque
05/09/21 Bank A/c Dr. 500
To Sales A/c 500
( being good sold)
06/09/21 Purchase A/c Dr. 400
To Cash A/c 400
( Being good purchased on cash)
1

10/09/21 Rent A/c Dr. 600
To Bank A/c 600
( Being rent paid by cheque)
12/09/21 Computer repairing A/c Dr. 100
To Cash A/c 100
( Being repairs for computer paid by
cash)
18/09/21 David A/c Dr. 100
TO purchase Return A/c 100
( Being goods has been returned to
David)
21/09/21 Bank A/c Dr. 300
To Rent Received A/c 300
(being rent received by cheque)
23/09/22 Joseph A/c Dr. 400
To sales A/c 400
( being good sold on credit)
23/09/22 Cash A/c Dr. 1500
To sales A/c 1500
( being good sold on cash )
24/09/22 Car A/c Dr. 1000
To Bank A/c 1000
( Being car purchased by cheque)
2

30/09/21 Wages A/c Dr. 700
To Cash A/c 700
(Being wages paid by cash)
30/09/21 Withdrawal A/c Dr. 450
To Cash A/c 450
(being owner has withdrawn cash)
Total 41900 41900
b) Balancing the account and bringing down an opening balance
Bank A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
01/09/21
To capital
A/c 24000 03/09/21
By High-
speed
Computer
A/c 2000
05/09/21
To Sales
A/c 500 10/09/21
By Rent
A/c 600
10/09/21
To Rent
A/c 300 24/09/22
By Car
A/c 1000
31/09/22
By
Balance
c/d 21200
Total 24800 24800
3

01/11/21
To opening
balance b/d 21200
Cash A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
01/09/21
To capital
A/c 8400 06/09/21
By
Purchase
A/c 400
23/09/22
To Sales
A/c 1500 12/09/21
Computer
repairing
A/c 100
30/09/21
By Wages
A/c 700
30/09/21
Withdrawa
l A/c
Dr. 450
30/09/22
By
Balance
c/d 8250
Total 9900 Total 9900
01/10/21
To opening
balance b/d 8250
Capital A/c
Dr. Cr.
Date Particular J.F Amount £ Date Particular J.F Amount £
4

s s
30/09/22
To
Balance
c/d 33400 01/09/21 Bank A/c 24000
01/09/21 Cash A/c 8400
01/09/21
Computer
A/c 1000
Total 33400 Total 33400
01/10/21
By
opening
balance b/d 33400
Computer A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
01/09/21
To capital
A/c 1000 30/09/22
By
Balance
c/d 1000
Total 1000 Total 1000
01/10/21
To opening
balance b/d 1000
Purchase A/c
5

Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
02/09/21
To David
A/c 900 30/09/22
By
Balance
c/d 1300
06/09/21
To Cash
A/c 400
Total 1300 Total 1300
30/09/22
To
Balance
c/d 1300
David A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
18/09/21
TO
purchase
Return A/c 100 02/09/21
Purchase
A/c 900
30/09/22
To
Balance
c/d 800
Total 900 Total 900
01/10/21
By
opening
balance b/d 800
6

Sales A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
30/09/22
To
Balance
c/d 900 05/09/21
By Bank
A/c 500
23/09/22 Joseph A/c 400
Total 900 Total 900
01/10/21
By
opening
balance b/d 900
High-speed Computer A/c Dr.
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
03/09/21
To Bank
A/c 2000 30/09/22
By
Balance
c/d 2000
Total 2000 2000
30/09/22
To
Balance
c/d 2000
7

Rent A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
10/09/21
To Bank
A/c 600 30/09/22
By
Balance
c/d 600
Total 600 Total 600
30/09/22
To
Balance
c/d 600
Rent Received A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
30/09/22
To
Balance
c/d
300
21/09/21 Bank A/c
300
Total 300 300
01/10/21 By
opening
300
8

balance b/d
Car A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
24/09/22
To Bank
A/c 1000 30/09/22
By
Balance
c/d 1000
Total 1000 Total 1000
30/09/22
To
Balance
c/d 1000
Computer repairing A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
12/09/21
To Cash
A/c 100 30/09/22
By
Balance
c/d 100
Total 100 Total 100
30/09/22 To 100
9

Balance
c/d
Purchase Return A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
30/09/22
To
Balance
c/d 100 18/09/21
By David
A/c 100
Total 100 Total 100
01/10/21
By
opening
balance b/d 100
Joseph A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
23/09/22
To sales
A/c 400 30/09/22
By
Balance
c/d 400
Total 400 Total 400
30/09/22 To
Balance
400
10

c/d
Wage A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
30/09/21
To Cash
A/c 700 30/09/22
By
Balance
c/d 700
Total 700 Total 700
30/09/22
To
Balance
c/d 700
Withdrawal A/c
Dr. Cr.
Date
Particular
s J.F Amount £ Date
Particular
s J.F Amount £
30/09/21
To Cash
A/c 450 30/09/22
By
Balance
c/d 450
Total 450 Total 450
30/09/22 To
Balance
450
11

c/d
c) Trial balance as at 30th September 2021
Particular Debit £ Credit £
Bank A/c 21200
Cash A/c 8250
Capital A/c 33400
Car A/c 1000
Computer A/c 1000
Purchase A/c 1300
David A/c 800
High-speed
Computer A/c 2000
Sales A/c 2400
Rent A/c 600
Computer
repairing A/c 100
Purchase Return
A/c 100
Joseph A/c 400
Wage A/c 700
Withdrawal A/c 450
Rent Received
A/c 300
Total 37000 37000
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d) Preparing income Statement for the period ended 30th September 2021
Income statement is related with assessing the expenditure and income of the particular duration
so that profitability can be ascertained (Understanding an Income Statement, 2022.). It is highly
important for the organization to pay attention on developing the significant and fair income
statement in turn accomplishing the objective of ascertaining that which are the expenses firm is
incurring in order to get the ability to perform in industry.
Particulars Amount £ Amount £
Sales A/c 2400
+ opening stock
+ purchase 1200
- closing stock 250
950
Gross profit 1450
Indirect expenses
Rent A/c 600
Computer
repairing A/c 100
Wage A/c 700 1400
Indirect income 300
Net profit 350
On the basis of this, it can be interpreted that firm is generating net profitability of £350
by overcoming expenditure in turn significant stability can be derived. There are distinct form of
the expense s which are incurred by the firm that includes rent, repairs of computer and wages
which are indicating that firm is taking indirect efforts to get profits. There is generating of
indirect income as well from the rent which is showing that firm is paying attention on having
reliable position in market to get net profitability in turn positive impact from stakeholders can
be achieved. On the basis of the conducted calculation, it can be interpreted that there is
13

requirement of declining expenses in turn attaining ability to gain competitiveness can become
possible.
e) Formulating statement of Financial Position as at 30th September 2021
Financial position is related with having significant statement which summarizes the
information regarding company's asses, liabilities and equity (Fridson and Alvarez, 2022.).
There are different types of the stakeholders who pay attention on gaining the insights of
organization performance so that its liquidity position, credibility, etc can be judged in respect to
formulate the crucial decision. This is based on the accounting equation in which assets are
equal to liabilities and equity.
Particulars Amount £ Amount £
Assets
Current assets
Bank A/c 21200
Cash A/c 8250
Joseph A/c 400
Closing stock 250 30100
Fixed assets
Car 1000
Computer A/c 1000
High-speed
Computer A/c 2000 4000
Total assets
34
100
Current
liability
14

David A/c 800 800
Owners equity
Capital A/c 33400
-withdrawal -450
+net profit 350
33300
Total liabilities
and equity 34100
From the above illustrated table it can be identified that firm possessing good financial
position. The min reason behind the particular position is having good current and fixed assets
which are enabling the firm to get the effectiveness in operating in sector. The specified
organization has lower liability as possesses creditor in its current liability. On the basis of this,
it can be interpreted that organization is having good financial health. In order to overcome the
prevailing complication such as shorting the capital due to presence of withdrawals which can be
improved by ensuring that such transactions are avoided. This can provide assistance in gaining
the competitive position in market via ensuring that irrelevant aspects are avoided to boost the
overall performance of enterprise. This is indicating that the organization has taken significant
course of action to get the appropriate ability to perform in market in turn accomplishing
organization objective of higher profitability, sustainability, etc can be achieved,
PART B
Calculating ratios
NPM ratio
Particulars Formula 2021
Net profit 350
Sales revenue 2400
NP ratio
Net profit /
sales * 100 15%
GP ratio
15

Particulars Formula 2021
Gross Profit 1450
Sales
revenue 2400
GP ratio
Gross
profit /
sales * 100 60%
Current ratio
Particulars Formula 2021
Current
assets 30100
Current
liabilities 800
Current
ratio
Current
assets /
current
liabilities 37.63
Acid test ratio
Particulars Formula 2021
Current
assets 30100
Inventory 250
Current
liabilities 800
Acid test
ratio
Current
assets -
(stock
)/Current
37.313
16

liabilities
Accounts receivable collection period
Particulars Formula 2021
Accounts receivable 400
Sales revenue 2400
Accounts receivable
collection period
Account
receivable /
sales *365 60.83
Accounts payable payment period
Particulars Formula 2021
COGS 950
Accounts payable 800
Accounts payable
payment period
COGS/trade
payable
*365 307.37
Analysing the Paul's performance by comparing with competitors
 Net profit is one of the significant ratio that helps in evaluating the ability of organization
to generate profit by making greater sales (Ratio Analysis. 2022). The company is having
15% of net profit which is lower than 28% so required to be improved as indicating less
effectiveness in generating profits.
 Gross profit is considered with assessing the efficiency of the firm to reduce the cost of
goods sold in respect to have higher profits (Palepu and et.al., 2020). From the evaluation
of the calculated ratio of gross profit which is 60% is lower than the competitors'
outcome such as 65%. On the basis of this, it can be articulated that Paul require focusing
on taking initiative for reduce cost in respect to overcome prevailing competition.
 Current ratio is related with having the appropriate ability of company to overcome the
current liabilities with help of the current assets. In the year 2021, Paul's organization's
performance is 37.63 times which higher than 2.1. This is negative sign as indicating that
17

firm is has not properly managed the current assets planning so require to reduce by
taking crucial actions.
 Acid test ratio is associated with using the cash & equivalent resources in order to
overcome the short term liabilities so that reliable assessment of company's liquidity
position can be done (Rao, 2021.). The particular firm is having 37.313 which is higher
than competitors results so that greater emphasis on taking action to modify its
performance should be provided.
 Account receivable collection period is related with having the appropriate ascertaining
of the company's ability to collect the payments from customers whom goods are sold on
credit. Paul's take days of 60.83 which higher than competitors results such as 47 days.
With respect to this, it can be interpreted that firm is having lower efficiency in
collecting the payments which can affect its competitive position in the market.
 Account payable payment period aids in assessing how efficiently firm focuses on
paying its payments to suppliers so that credibility in market can be ascertained
(Robinson, 2020). The derived result is indicating that 433.3 days are taken into
consideration. The competitors results are 65 days which is less than derived results of
Paul. On the basis of this, it can be interpreted that firm need to concentrate on taking
significant strategy for improving the same.
18

REFERENCES
Books and Journals
Fridson, M. S. and Alvarez, F., 2022. Financial statement analysis: a practitioner's guide. John
Wiley & Sons.
Jackson, A. B., 2021. Financial statement analysis: a review and current issues. China Finance
Review International.
Palepu, K. G and et.al., 2020. Business analysis and valuation: Using financial statements.
Cengage AU.
Rao, P. M., 2021. Financial statement analysis and reporting. PHI Learning Pvt. Ltd.
Robinson, T. R., 2020. International financial statement analysis. John Wiley & Sons.
Online
Ratio Analysis. 2022. [Online]. Available through: <https://www.wallstreetmojo.com/ratio-
analysis/>
Understanding an Income Statement. 2022. [Online]. Available through:
<https://bench.co/blog/accounting/income-statement/>
19