Recording Business Transaction - Assignment

RECORDING BUSINESS
TRANSACTION

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
(a) Journal Entries of Jill.............................................................................................................1
(b) General Ledger of Jill............................................................................................................2
(c) Trial Balance of Jill...............................................................................................................5
(d) Income Statement of Jill........................................................................................................6
(e) Statement of Financial Position of Jill...................................................................................6
PART B............................................................................................................................................7
Calculations of ratios of Jill :......................................................................................................7
Comparison of various ratios of Jill with competitors average:.................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Recording of business transaction means entering a transaction and providing a
chronological record of business activities (Veblen, 2017). Recording of business transaction
firstly include recording of journal entries, then ledgers are prepared from the journal entries by
opening the accounts, then all the closing balances of the ledgers are transferred to trial balance,
which is used in preparation of statement of income and statement of financial positions. From
the statement of income and financial position, various ratios like net profit margin, gross profit
margin, current ratio, acid test etc. are calculated for better understanding of financial statements
of the entity.
PART A
(a) Journal Entries of Jill
Date Particulars Debit (￡) Credit (￡)
01/09/17 Bank A/c Dr 3000
Cash A/c Dr 800
To Capital A/c 3800
(being business started with cash balance of ￡ 800 and
bank balance of ￡3000 )
02/09/17 Purchase A/c Dr 900
To Ron A/c 900
(being goods purchase in credit from Ron amounting of
￡900 )
03/09/17 Computer A/c Dr 800
To Bank A/c 800
(being computer amounting of ￡800 purchased through
cheque)
05/09/17 Bank A/c Dr 500
To Sales A/c 500
(being goods sold amounting of ￡ 500 and received
money in bank)
06/09/17 Purchase A/c Dr 400
To Cash A/c 400
(being goods purchase amounting of ￡400 in cash
from C Jones)
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10/09/17 Rent Paid A/c Dr 300
To Bank A/c 300
(being rent amounting of ￡300 paid through cheque)
12/09/17 Stationery A/c Dr 100
To Cash A/c 100
(being stationery amounting of ￡100 purchase in
cash )
18/09/17 Ron A/c Dr 100
To Purchase Return A/c 100
(being goods amounting of ￡ 100 returned to Ron
which was purchased on 02/09/2017)
21/09/17 Bank A/c Dr 100
To Rent Received A/c 100
(being rent amounting of ￡ 100 received of let off part
of premises)
23/09/17 Bill A/c Dr 400
To Sales A/c 400
(Being goods amounting of ￡400 sold to Bill on credit)
23/09/17 Cash A/c Dr 1500
To Sales A/c 1500
(Being goods amounting of ￡ 1500 sold in cash)
24/09/17 Car A/c Dr 900
To Bank A/c 900
(being car amounting of ￡900 purchase in cheque for
business use)
30/09/17 Wages A/c Dr 400
To Cash A/c 400
(being wages amounting of ￡ 400 paid in cash)
30/09/17 Capital A/c Dr 550
To Cash A/c 550
(being cash amounting of ￡550 withdraw by Jill in
cash)
(b) General Ledger of Jill
Capital A/c
2

Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
30/09/17 To Cash A/c 550 01/09/17 By Bank A/c 3000
01/09/17 By Cash A/c 800
30/09/17 To Balance c/f 3250
Total 3800 Total
01/10/17 By Balance b/f 3250
Cash A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
01/09/17 To Capital A/c 800 06/09/17 By Purchase A/c 400
23/09/17 To Sales A/c 1500 12/09/17 By Stationery A/c 100
30/09/17 By Capital A/c 550
30/09/17 By Wages A/c 400
30/09/17 By Balance c/f 850
Total 2300 Total 2300
01/10/17 To Balance b/f 850
Bank A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
01/09/17 To Capital A/c 3000 03/09/17 By Computer A/c 800
05/09/17 To Sales A/c 500 10/09/17 By Rent Paid A/c 300
21/09/17 To Rent Received A/c 100 24/09/17 By Car A/c 900
30/09/17 By Balance c/f 1600
Total 3600 Total 3600
01/10/17 To Balance b/f 1600
Purchase A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
02/09/17 To Ron A/c 900
06/09/17 To Cash A/c 400 30/09/17 By Balance c/f 1300
Total 1300 Total 1300
01/10/17 To Balance b/f 1300
Ron A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
18/09/17 To Purchase Return A/c 100 02/09/17 By Purchase A/c 900
30/09/17 To Balance c/f 800
Total 900 Total 900
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01/10/17 By Balance b/f 800
Computer A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
03/09/17 To Bank A/c 800 30/09/17 By Balance c/f 800
Total 800 Total 800
01/10/17 To Balance b/f 800
Sales A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
30/09/17 To Balance c/f 2400 05/09/17 By Bank A/c 500
23/09/17 By Bill A/c 400
23/09/17 By Cash A/c 1500
Total 2400 Total 2400
01/10/17 By Balance b/f 2400
Stationery A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
12/09/17 To Cash A/c 100 30/09/17 By Balance c/f 100
Total 100 Total 100
01/10/17 To Balance b/f 100
Purchase Return A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
30/09/17 To Balance c/f 100 18/09/17 By Ron A/c 100
Total 100 Total 100
01/10/17 By Balance b/f 100
Rent Paid A/c
Date Particulars
￡Amount
in￡ Date Particulars
Amount
in￡
10/09/17 To Bank A/c 300 30/09/17 By Balance c/f 300
Total 300 Total 300
01/10/17 To Balance b/f 300
Rent Received A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
30/09/17 To Balance c/f 100 21/09/17 By Bank A/c 100
Total 100 Total 100
01/10/17 By Balance b/f 100
4

Bill A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
23/09/17 To Sales A/c 400 30/09/17 By Balance c/f 400
Total 400 Total 400
01/10/17 To Balance b/f 400
Car A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
24/09/17 To Bank A/c 900 30/09/17 By Balance c/f 900
Total 900 Total 900
01/10/17 To Balance b/f 900
Wages A/c
Date Particulars
Amount
in￡ Date Particulars
Amount
in￡
30/09/17 To Cash A/c 400 30/09/17 By Balance c/f 400
Total 400 Total 400
01/10/17 To Balance b/f 400
(c) Trial Balance of Jill
Particulars Debit Amount (￡) Credit Amount (￡)
Capital A/c 3250
Cash A/c 850
Bank A/c 1600
Purchase A/c 1300
Ron A/c 800
Computer A/c 800
Sales A/c 2400
Stationery A/c 100
Purchase Return A/c 100
Rent Paid A/c 300
Rent Received A/c 100
Bill A/c 400
Car A/c 900
Wages A/c 400
Total 6650 6650
Assuming Closing Inventory ￡ 300
5

(d) Income Statement of Jill
Particulars Amount in￡ Amount in￡
Sales 2400
Less:Cost of Goods Sold
Opening Inventory 0
Add:Purchase 1200
Less:Closing Inventory 300
Add:Wages 400 1300
Gross Profit 1100
Add:Income
Rent Received 100
Less:Expenses
Rent Paid 300
Stationery 100 400
Net Profit 800
Note : Jill has a Gross Profit of ￡1100 and Net Profit of ￡800 with Turnover of ￡ 2400.
(e) Statement of Financial Position of Jill
Assets : Amount in￡ Amount in￡
Fixed Assets :
Computer 800
Car 900 1700
Current Assets :
Cash at Bank 1600
Cash in hands 850
Accounts Receivable: Bill 400
Inventory 300 3150
Total Assets 4850
Less: Liabilities
Accounts Payable :Ron 800
Net Assets 4050
Capital :
Opening Balance 3800
Less : Drawings 550
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Capital after Drawings 3250
Add : Profit 800
Closing Capital 4050
Note 1: Jill have Total Fixed Assets of ￡ 1700 , Current Assets of ￡3150 , Current Liabilities of
￡800 and Closing capital of ￡4050.
Note 2: Working Capital means Current Assets – Current Liabilities. Therefore, working capital
of Jill is ￡ 2350 ( 3150 – 800 )
PART B
Calculations of ratios of Jill :
(a) Net Profit Margin Ratio (%) = Net Profit / Sales *100
800 / 2400 * 100
33.33 %
This ratio is used to describe the company's ability to produce profit by taking sales as
base (Sucuahi, 2013). It indicates the overall success factor of a company and it includes revenue
as well as the all the expenses. It is indicated in percentage form.
(b) Gross Profit Margin Ratio (%) = Gross Profit / Sales *100
1100 / 2400 * 100
45.83 %
This ratio is almost same to net profit margin ratio but it does not include expenses other
than cost of sales and direct expenses (i.e. all expenses written on Profit and Loss Account are
not considered). It is used to measure how a company utilise its material and labour to enhance
its profitability (Adejare, 2014).
(c) Current Ratio (Times) = Current Assets / Current Liabilities
3150 / 800
3.94 Times
Current Ratio is calculated by the company to find the liquidity position of a company
(Zikmund and et. al., 2013). Liquidity position means company's capability of a business to meet
its short term obligations that are due or payable within one year. If current ratio of a company is
high then it is good because a high current ratio indicates that the company is more likely to pay
the creditor back.
(d) Acid Test Ratio (Times) = Current Assets – Inventory / Current Liabilities
(3150 - 300) / 800
3.56 Times
If company wants to determine liquidity ratio then this ratio is used and it is better than
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current ratio in this context. It is an indicator of company's short term liquidity. It measures the
the ability to use its quick assets such as cash and cash equivalents, accounts receivable &
market securities (Cassidy, 2016).
(e) Accounts receivable collection period (Days)= Accounts Receivable / Sales * 365
400 / 2400 * 365
61 Days
This ratio is calculated to find how much days credit sales is taken to convert into cash. It
is the average number of days between the date a credit sale is made, and to the date the money
is received from the customers (Hu and et. al., 2012).
(f) Accounts payable payment period (Days)= Accounts Payable / Purchase * 365
800 / 1200 * 365
244 Days
Accounts payable payment period examines the relationship between the credit purchase
made and the payments made for them. It measures the average number of days taken by the
entity to make payment to its suppliers. It is always beneficial to have higher accounts payable
payment period (Burt and Garvie-Lok, 2013).
Comparison of various ratios of Jill with competitors average:
Particulars
Actual
Ratios of
Jill
Competitors
Average Comments
Net Profit Margin
Ratio (%) 33.33 30
Net Profit Margin Ratio means the
percentage of revenue remaining after all
operating and non operating expenses have
been deducted from a company total
revenue (Zhuo and et. al., 2015). It is
beneficial to have higher Net Profit Margin
Ratio, Jill is having better Net Profit
Margin Ratio as compared to competitors
average, therefore, it will give competitive
advantage to Jill.
Gross Profit Margin
Ratio (%) 45.83 58
It is beneficial to have higher Gross Profit
Margin Ratio, Jill is having lower Gross
Profit Margin Ratio as compared to
competitors average, therefore, Jill has
failed to enjoy competitive advantage.
Current Ratio (Times) 3.94 3.70
Ideal Current Ratio is 2 or higher. It is
beneficial to have higher Current Ratio, Jill
is having better Current Ratio as compared
to competitors average, therefore, Jill is
enjoying competitive advantage.
Acid Test Ratio
(Times)
3.56 3.50 Generally , acid test ratio should be at least
1:1 (Mickes and et. al., 2014).It is
beneficial to have higher acid test ratio, Jill
8

is having better acid test ratio as compared
to competitors average, therefore, Jill is
enjoying competitive advantage.
Accounts receivable
collection period
(Days) 61 57
It is beneficial to have lower accounts
receivable collection period because it
indicate the average time of collection
from debtor, Jill is having higher accounts
receivable collection period as compared to
competitors average, therefore, Jill is
required to improve its accounts receivable
collection period.
Accounts payable
payment period (Days) 244 85
It is beneficial to have higher accounts
payable payment period because it indicate
the average time of payment to creditors,
Jill is having higher accounts payable
payment period as compared to
competitors average, therefore, Jill is
enjoying its higher accounts payment
period.
CONCLUSION
The above transaction are recorded and statement of income and financial position is
prepared to analyse and understand the financial feasibility of Miss Jill by calculating various
ratios like gross profit margin ratio, net profit margin ratio, current ratio, acid test ratio etc. and
comparing the same with industry average to come to an conclusion that whether Miss Jill is
working better than their competitive or not.
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REFERENCES
Books and Journals:
Adejare, A. T., 2014. The analysis of the impact of accounting records keeping on the
performance of the small scale enterprises. International Journal of Academic Research
in Business and Social Sciences. 4(1). p.1.
Burt, N. M. and Garvie-Lok, S., 2013. A new method of dentine microsampling of deciduous
teeth for stable isotope ratio analysis. Journal of Archaeological Science. 40(11).
pp.3854-3864.
Cassidy, A., 2016. A practical guide to planning for E-business success: how to E-enable your
enterprise. CRC Press.
Hu, Z. and et. al., 2012. Improved in situ Hf isotope ratio analysis of zircon using newly
designed X skimmer cone and jet sample cone in combination with the addition of
nitrogen by laser ablation multiple collector ICP-MS. Journal of Analytical Atomic
Spectrometry. 27(9). pp.1391-1399.
Mickes, L. and et. al., 2014. Missing the information needed to perform ROC analysis? Then
compute d′, not the diagnosticity ratio. Journal of Applied Research in Memory and
Cognition. 3(2). pp.58-62.
Sucuahi, W. T., 2013. Determinants of financial literacy of micro entrepreneurs in Davao
City. International Journal of Accounting Research. 1(1). pp.44-51.
Veblen, T., 2017. Absentee Ownership: Business Enterprise in Recent Times-The Case of
America. Routledge.
Zhuo, W. and et. al., 2015. Fisetin, a dietary bioflavonoid, reverses acquired Cisplatin-resistance
of lung adenocarcinoma cells through MAPK/Survivin/Caspase pathway. American
journal of translational research. 7(10). p.2045.
Zikmund, W. G. and et. al., 2013. Business research methods. Cengage Learning.
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