Recording Business Transactions and Financial Analysis

This document provides an overview of the process of recording business transactions and conducting financial analysis. It covers topics such as T-accounts, trial balance, ratio calculation, income statement, and statement of financial position. It also includes a comparison of Linda's performance with industry averages.

Portfolio

INTRODUCTION
Recording business transactions is multi step procedure in record all the financial
transactions that occur in the business in particulars financial year. At the starting analysis all the
transactions after that decided which account credited and which account will be debited
(Mendling and et.al, 2018). An organisation use different formate to record all the business
transactions like journal entries, ledger, profit and loss account and financial position statement.
In this report consist of trial balance, ratio calculation and analysis the performance of
competitors.
PART A
(a) Write double entry record the transactions in T-accounts
Date particularss L.F
Debit
Amt.
Credit
Amt.
2020
01/10/20 Bank Account Dr 8000
Cash Account Dr 5200
Van Account Dr 3000
To Capital Account 16200
(Being business started)
02/10/20 Laptop Account Dr 1000
To Bank Account 1000
(Being laptop purchased)
04/10/20 Purchase Account Dr 2450
1

To Toy Ltd 2450
(Being purchase made)
05/10/20 Bank Account Dr 1500
To Sales Account 1500
(Being sales made)
12/10/20
…..Repairs Account.....
Dr 80
…..To Cash
Account..... 80
(Being cash paid for
repairs)
18/10/20 Toy Ltd Account Dr 100
To Purchase Return
Account 100
(Being purchase return
made)
21/10/20 Bank Account Dr 500
…...To Rent
Account...... 500
(Being rent received)
2

23/10/20 Cash Account Dr 1500
Fred Account Dr 400
To Sales Account 1900
(Being sales made)
23/10/20
…..Cash Account.....
Dr 500
….. To Sales
Account..... 500
(Being sales made)
24/10/20
…..Car Account …....
Dr 2500
…..To Bank
Account..... 2500
(Being car purchased)
26/10/20 Wages Account Dr 820
To Bank Account 820
(Being wages paid)
30/10/20 Rent Account Dr 1000
To Bank Account 1000
(Being rent paid)
3

31/10/20 Drawings Account Dr 1600
To Bank Account 1600
(Being drawings made)
b) balance the accounts and bring down an opening balance
Bank account
Date particulars
Jour
nal
folio Amt. Date particulars
Jou
rnal
foli
o Amt.
…...To capital 8000
…...To sales 1500 …....By laptop 1000
…...To rent
received 500 …...By Car 2500
…...By wages 820
…...By Rent 1000
…...By drawing 1600
….By balance c/d 3080
Total 10000 Total 10000
Rent received account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journal
folio Amt.
…...By bank 500
4

500 500
Cash account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journa
l folio Amt.
…...To capital 5200 …...By repair 80
…...To sales 1500
…...By balance
c/d 7120
To sales 500
7200 7200
Fred Account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journ
al
folio Amt.
…...To sales 400
…...By balance
b/d 400
Purchase Account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journ
al folio Amt.
…...To Toys
limited 2450
…...By balance
c/d 2450
Toys limited Account
5

Date particulars
Jou
rnal
folio Amt. Date particulars
Journal
folio Amt.
…...To purchase
return 100
…...By
purchase 2450
…...To balance
b/d 2350
2450 2450
Rent Account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journal
folio Amt.
…...To Bank 1000
…...By
balance b/d 1000
Van Account
Date particulars
Journal
folio Amt. Date particulars
Journ
al
folio Amt.
…...To
capital 3000
…...By
balance b/d 3000
Capital Account
Date particulars
Jou
rnal
folio Amt. Date particulars
Journ
al
folio Amt.
…...To balance 16200 …...By bank 8000
6

b/d
…...By cash 5200
…...By van 3000
Sales Account
Date particulars
Jour
nal
folio Amt. Date particulars
Journa
l folio Amt.
…...To balance
b/d 3900 …...By bank 1500
…...By cash 1500
…...By Fred 400
…...By cash 500
Laptop Account
Date particulars
Journal
folio Amt. Date particulars
Jour
nal
folio Amt.
…...To bank 1000 …...By bal. b/d 1000
Car Account
Date
particular
s
Journal
folio Amt. Date particulars
Journ
al
folio Amt.
…...To
Bank 2500 …...By bal. b/d 2500
7

Drawing Account
Date
particular
s
Journal
folio Amt. Date particulars
Jou
rnal
folio Amt.
…...To
Bank 1600 …...By bal. b/d 1600
Wages Account
Date
particular
s
Journal
folio Amt. Date particulars
Jou
rnal
foli
o Amt.
…...To
Bank 820 …...By bal. b/d 820
Repair Account
Date
particular
s
Journal
folio Amt. Date particulars
Jou
rnal
folio Amt.
…...To
cash 80 …...By bal. b/d 80
c) Extract a Trial balance as at 31st October 2020
It is a list of all general ledger balances in which consist of revenues as well as capital of
business entity. All the balances categorised into two columns debit and credit with the name of
ledger accounts. The main objective of trial balance is that calculate total of debit and credit
balances to tally all the transactions because each transaction impact on dual side (Chong and
et.al, 2019).
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Accounts Debit Credit
Bank 3080
Cash 7120
Van 3000
Laptop 1000
Toys limited 2350
Purchase 2450
Purchase return 100
Sales 3900
Rent received 500
Rent paid 1000
Wages 820
Drawing 1600
Capital 16200
Repairing
account 80
Fred account 400
Car account 2500
22550 22550
d) Prepare an Income Statement for the period ended 31st October 2020
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particulars Amt.
Sales 3900......
Less : Cost of goods solds
Opening stocks Nil
Purchase 2450.......
Less: Carried outward 100........
Less: Closing stock 250........
Gross revenue 1800....
Less: Operating costs
Expenses for repairing 80.....
Wages 820.....
Rent expenses 1000...... 1900......
Add: Operating income
Rent income 500......
Net profits 400.....
e) Prepare a Statement of Financial Position as at 31st October 2020
particulars Amt. Total
Fixed assets
…...Car 2500
…...Van 3000
…...Laptop 1000 6500
Current Assets
…...Cash account 7120
10

…...Bank account 3080
…...Debtor 400
…...Stock 250
Total assets 17350
Equity and liabilities
…...Equity
…...Capital 16200
…...Less: Drawing 1600 14600
…...Retain earnings 400
Current liabilities
…...Toys limited account 2350
Total equities and
liabilities 17350
f) Write a brief letter to Linda explaining what drawings are concerning small business and
answering her query concerning her holiday.
Accounting is utilised to analysis and record the business activities that require to
classified various items. If Linda withdraw 1600 for travelling expenses so it direct impact on the
profitability of the business. If Linda plan this trip for official purpose so it is included in official
purpose other wise it is not good for the business profitability. This transaction has been
presented in the debit side as expenditure. In this case Linda is only the owner of her
organization thus Amt. of drawing has been deducted from her capital (Newell and Holland,
2018).
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PART B
Ratio calculations
particulars Formula Linda
organization
Industry
ratio
Net profit Net profit/ Net sales * 100 400/3900*100 10.26% 31
Gross profit Gross profit/ Net revenue*
100
1800/3900*100 46.15% 54
Current ratio Current assets / Current
liabilities
10850/ 2350 4.62 2.87
Quick ratio Quick assets / Current
liabilities
10600/2350 4.51 1.35
Account
receivable
collection period
Sales/ Average account
receivables*365
3900/400*365 37.44 days 50 days
Account payable
ratio
Average payable/ Average
creditors
2450/2350*365 350 days 72 days
Linda's competitors ratio averages are as stated above: Analyse her performance with reference
to each of the ratios calculated in comparison to those of her competitor.
Financial ratio is used as a tool to analysis the financial performance of the business from
past year activities. For this analysis financial statements of business and present relation in
company's financial information and used for comparison. After the analysis company take right
decision for the investment. There are calculating different ratio of company to analysis the
financial health (Lansky, 2018).
 Net profit margin ratio: It is calculated by the company to know the worth of business
because it helps to know profit of business. As per the calculation it is analysed Linda
generate 10.26% in their business and their competitive industry generates 31%. Thus, it
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is presented that Linda is lesser to competitive industry and need to sale out more
products.
 Gross profit ratio: This ratio presented the profit generation ability in which do not less
any deductions. When company generated high gross profit ratio so it present good
condition of entity otherwise not. In case of Linda generate 46.15 percent but other
industry generate 54%. It means Linda has low profitability and require to use effective
business policies.
 Current ratio: This ratio presents relationship in between current assets and current
liabilities. The ideal ratio is 2:1 that present good current position of company and able to
pay short term loans. According to calculation Linda has 4:62 and industry was 2:67 that
presents that Linda has too much liquidity to pay off their debts (Pan and et.al, 2020).
 Quick ratio: It is defined as indicator that presents short term liquidity position and
analysis the capability of business to meet with their short term goals and obligations. If
ratio increase that means company has high liquidity position to pay off their debts and
lower the ratio presents struggle with paying debts. As per the calculation it is analysed
that company has effective liquidity position 4:61 as compare of industry 1:89.
 Accounts receivable ratio: This accounting ratio apply by the business to analysis the
effectiveness and collecting receivables by customers. It is used by the business to
manage their creditability and quickly collect short term debts.
 Accounts payable ratio: It is used by the business to analysis the short term liquidity and
set a rate to pay off debts to their suppliers. This ratio presented that how many times
organisation pay off its accounts (Alles and et.al, 2018).
CONCLUSION
As per the above report it has been concluded that a business financial performance based
on the financial statement because its presents the actual performance of the business. For this
require to record all the transactions prepare all the financial statements like p&l statement,
financial position and trial balance. Along with calculate ratios that present actual financial
health in effective manner.
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REFERENCES
Books and Journals
Mendling, J. and et.al, 2018. How do machine learning, robotic process automation, and
blockchains affect the human factor in business process management?. Communications
of the Association for Information Systems. 43(1). p.19.
Chong, A. Y. L. and et.al, 2019. Business on chain: A comparative case study of five
blockchain-inspired business models. Journal of the Association for Information
Systems. 20(9). p.9.
Newell, P. and Holland, K., 2018. Loudspeakers: For music recording and reproduction.
Routledge.
Lansky, J., 2018. Possible state approaches to cryptocurrencies. Journal of Systems Integration.
9(1). pp.19-31.
Pan, X. and et.al, 2020. Blockchain technology and enterprise operational capabilities: An
empirical test. International Journal of Information Management. 52. p.101946.
Alles, M. and et.al, 2018. Continuous Monitoring of Business Process Controls: A Pilot
Implementation of a Continuous Auditing System at Siemens1. In Continuous Auditing.
Emerald Publishing Limited.
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