Practical Aspects of Accounting in Business

This report focuses on developing an overall understanding of practical aspects of accounting in business. It covers topics such as journal entries, ledger, trial balance, income statement, balance sheet, ratio analysis, and performance analysis. The report also includes a comparison of the company's performance with its competitors.

Portfolio
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INTRODUCTION
In an organisation, it is necessary that management of the company is keeping records of
each and every transaction. This will help to find out the actual financial position of the business.
This whole process will facilitate the company to take on decisions for future course of actions.
Strategy formulation becomes more effective and efficient. This report focuses on developing an
overall understanding of practical aspects of accounting of business.
MAIN BODY
Part A
1. Journal entries
Journal
Date Particulars L.F. Amount Amount
October,
2020
Dr.
£
Cr.
£
1st
Bank A/C
Dr. 8000
Cash A/C
Dr. 5200
Van A/C
Dr. 3000
To Capital A/C 16200
(Being capital invested in new business)
2nd
Laptop A/C
Dr. 1000
To Bank A/C 1000
(Being Laptop purchased and payment made
through bank)
4th
Purchase A/c
Dr. 2450
To Toys Ltd. A/C 2450
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(Being goods purchased on credit)
5th
Bank A/C
Dr. 1500
To Sales A/C 1500
(Being goods sold and payment recd. In bank)
12th
Repairs A/C
Dr. 100
To Cash A/C 100
(Being Laptop repaired and payment made in
cash)
18th
Sales Return A/C
Dr. 100
To Toys Ltd. A/C 100
(Being goods returned to Toys Ltd.)
21st
Bank A/C
Dr. 500
To Rent recd. A/C 500
(Being rent received for part of premises)
23rd
Cash A/C
Dr. 1500
Fred A/C
Dr. 400
To Sales A/C 1900
(Being goods sold, part payment received in
cash)
24th
Car A/C
Dr. 2500
To Bank A/C 2500
(Being second hand car purchased for office
use)
26th Wages A/C 820
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Dr.
To Bank A/C 820
(Being wages paid to part time employee)
30th
Drawings A/C
Dr. 1600
To Bank A/C 1600
(Being amount withdrawn for personal holidays)
31st
Rent paid A/C
Dr. 1000
To Bank A/C 1000
(Being Rent Paid through cheque)
Total 29670 29670
2. Ledger
Purchase a/c
Date Particular Amount Date Particular Amount
04/10/20 To Toys Ltd. 2450 31/10/20 By Balance c/d 2450
2450 2450
01/11/20 To Balance b/d 2450
Bank a/c
Date Particular Amount Date Particular Amount
01/10/20 To Capital A/C 8000 02/10/20 By Laptop A/C 1000
05/10/20 To Sales A/C 1500 24/10/20 By Car A/C 2500
21/10/20 To Rent A/C 500 26/10/20 By Wages A/C 820
30/10/20 By Drawings A/C 1600
31/10/20 By Rent A/C 1000
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31/10/20 By Balance c/d 3080
10000 10000
01/11/20 To Balance b/d 3080
Cash a/c
Date Particular Amount Date Particular Amount
01/10/20 To Capital A/C 5200 12/10/20 By Repairs A/C 100
23/10/20 To Sales A/C 1500 31/10/20 By Balance c/d 6600
6700 6700
Van a/c
Date Particular Amount Date Particular Amount
01/10/20 To Capital A/C 3000 31/10/20 By Balance c/d 3000
3000 3000
01/11/20 To Balance b/d 3000
Laptop a/c
Date Particular Amount Date Particular Amount
02/10/20 To Bank A/C 1000 31/10/20 By Balance c/d 1000
1000 1000
01/11/20 To Balance b/d 1000
Toys Ltd a/c
Date Particular Amount Date Particular Amount
18/10/20 To sales return A/C 100 04/10/20 By Purchase A/C 2450
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31/10/20 To Balance c/d 2350
2450 2450
01/11/20 By Balance b/d 2350
Sales a/c
Date Particular Amount Date Particular Amount
31/10/20 To Balance c/d 3400 05/10/20 By Bank A/C 1500
23/10/20 By Cash A/C 1500
By Fred A/C 400
3400 3400
01/11/20 By Balance b/d 3400
Repairs a/c
Date Particular Amount Date Particular Amount
12/10/20 To Cash A/C 100 31/10/20 By Balance c/d 100
100 100
01/11/20 To Balance b/d 100
Sales Return a/c
Date Particular Amount Date Particular Amount
18/10/20 To Toys Ltd. 100 31/10/20 By Balance c/d 100
100 100
01/11/20 To Balance b/d 100
Rent received a/c
Date Particular Amount Date Particular Amount
21/10/20 To Balance c/d 500 31/10/20 By Bank A/C 500
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500 500
01/11/20 By Balance b/d 500
Rent paid a/c
Date Particular Amount Date Particular Amount
31/10/20 To Bank A/C 1000 31/10/20 By Balance c/d 1000
1000 1000
01/11/20 To Balance b/d 1000
Drawings A/C
Date Particular Amount Date Particular Amount
30/10/20 To Bank A/C 1600 31/10/20 By Balance c/d 1600
1600 1600
01/11/20 To Balance b/d 1600
Wages a/c
Date Particular Amount Date Particular Amount
26/10/20 To Wages A/C 820 26/10/20 By Balance c/d 820
820 820
01/11/20 To Balance b/d 820
Fred a/c
Date Particular Amount Date Particular Amount
23/10/20 To Sales A/C 400 31/10/20 By Balance c/d 400
400 400
31/10/20 To Balance b/d 400
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Capital a/c
Date Particular Amount Date Particular Amount
31/10/20 To Balance c/d 16200 01/10/20 By Bank A/C 8000
By Cash A/C 5200
By Van A/C 3000
16200 16200
01/11/20 By Balance b/d 16200
3. Trial balance
Trial Balance
Particulars Amount Amount
Dr. £ Cr. £
Purchase A/C 2450
Bank A/C 3080
Cash A/C 6600
Van A/C 3000
Laptop A/C 1000
Toys Ltd A/C 2350
Repairs A/C 100
Sales return A/C 100
Rent received A/C 500
Rent paid A/C 1000
Drawings A/C 1600
Wages A/C 820
Fred A/C 400
Capital A/C 16200
Sales A/C 3400
2300
Total 22450 22450
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4. Income statement
Income Statement
Expenses Amount Incomes Amount
Purchase A/C 2450 Closing Inventory 250
Sales return A/C 100 Sales 3400
Wages A/C 820
Gross profit 280
3650 3650
repairs 100 gross profit 280
rent paid 1000 rent recd 500
net loss 220
1100 1100
5. Balance sheet
Balance Sheet
Liabilities Amount Assets Amount
Toys Ltd A/C 2350 Bank A/C 3080
Capital A/C 16200 Cash A/C 6600
Van A/C 3000
Laptop A/C 1000
Drawings A/C 1600
Fred A/C 400
Suspense A/C 2300
closing inventory 250
net loss 220
18550 18550
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6. Solving queries related to drawing
This transaction cannot be classified as the business expense as it is being done in favour
of personal segment and thus, it will come under the head drawing. This is basically an expense
or loan which is being given to the proprietor and it will be considered as asset or will be
deducted from the amount of capital.
Part B
1. Ratio analysis
Net profit margin: (Net profit/ sales)*100
in the given case,
net profit= (220)
sales= 3400
ratio= (220/3400)*100=6.47 %
It is basically the percentage of net loss.
Gross profit margin: (Gross profit/sales)*100
in the given case,
gross profit = 280
sales = 3400
ratio = (280/3400)*100 = 0.001%
current ratio = current assets/current liabilities
= 10080/235= 4.28
acid test ratio = Quick asset/Current liabilities
= 9680/2350
=4.11
accounts receivable collection period = (average receivable/ net sales)*365
= (400/3400)*365
=43 days.
Accounts payable payment period = (average payables/ net purchases)*365
= (2350/2450)*365
=350 days
2. Performance analysis in comparison of competitor's performance
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Ratio Linda's business Competitor's
Gross profit ratio 0.10% 54.00%
Net profit ratio (6.47%) 31.00%
Acid test ratio 4.11 1.35 times
Current ratio 4.28 2.87 times
Accounts receivable period 43 days 50 days
Accounts payable payment
period
350 days 72 days
This table shows the comparison between performance of two companies and it is quite
evident that both the companies have very diverse performance. Linda's business is not at all
performing well. It is incurring losses and the other business have a quite profitable. In case of
receivables and payment period also, the former company is not doing so well. They are giving
huge credit period, which is not at all good condition for working capital operations.
CONCLUSION
From the above report, it can be concluded that there are various aspects those needs to
be considered in the process of accounting. This will be helpful in doing the right treatment of
each and every particular. This will be ultimately reflecting into true and fair position of financial
position of company.
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REFERENCES
Books and Journals
Burstein, A., Morales, E. and Vogel, J., 2015. Accounting for changes in between-group
inequality (No. w20855). National Bureau of Economic Research.
Schroeder, R. G., Clark, M. W. and Cathey, J. M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Walker, S. P., 2016. Revisiting the roles of accounting in society. Accounting, Organizations and
Society. 49. pp.41-50.
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