Recording Business Transactions

This document provides a detailed guide on recording business transactions, including journal entries, balancing accounts, extracting trial balance, preparing income statement and statement of financial position. It also covers the calculation of important ratios and their comparison with industry standards. The document emphasizes the importance of accurate recording of transactions for business growth and success.

Recording business
transactions

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. Recording of all the transaction of Linda in a T- account in an accurate and precise manner1
2. Balancing the accounts so as to bring down an opening balance............................................2
3. Extracting a trial balance as at 31st October 2020....................................................................6
4. Preparing an Income statement................................................................................................6
5. Preparing a statement of financial position.............................................................................7
6. Detailed evaluation of all the answers in an appropriate and impactful way..........................8
PART 2............................................................................................................................................8
1. Calculation of different type of ratios that posses a lot of importance in the current scenario
for the above mentioned company...............................................................................................8
2. Comparison of the above calculated ratios including their interpretation...............................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Recording business transactions in an effective and efficient manner posses a lot of
importance in the current scenario as it can help a business firm to grow and prosper in the
market but at the same time it carriers the potential to damage and disrupt the positioning and
conditioning of the company in the long run (Bernaz, 2016). In this report there is a brief
discussion of a person that is named Linda that has started a business of buying and selling of
toys from 1st October 2020 in Oxford. Apart from this all the calculations starting from making
journal entries in the books to making an income statement and calculating ratios on the basis of
it all are done in a sequential manner in this report.
PART 1
1. Recording of all the transaction of Linda in a T- account in an accurate and precise manner
Journal entry in the books of Linda from 1st October 2020
Date Particulars DR CR
1/10/2020 Bank a/c DR
Cash a/c DR
Van a/c DR
To capital a/c
(Being capital in the business invested)
8000
5200
3000
16200
2/10/2020 Laptop a/c DR
To bank a/c
(Being Laptop purchased on credit)
1000
1000
4/10/2020 Purchase a/c DR
To Toys limited
(Being Toys purchased on credit)
2450
2450
5/10/2020 Bank a/c DR
To sales a/c
(Being goods sold in cash)
1500
1500
12/10/2020 Repairing laptop a/c DR
To cash a/c
80
80

(Being amount paid for repairing laptop in
cash)
18/10/2020 Toys limited a/c DR
To purchase return a/c
(Being goods returned to Toys limited)
100
100
21/10/2020 Bank a/c DR
To rent a/c
(Being rent received)
500
500
23/09/2020 Cash a/c DR
Fred a/c DR
To sales a/c
(Being goods sold on cash and credit)
1500
400
1900
23/10/2020 Cash a/c DR
To sales a/c
(Being goods sold in cash)
500
500
24/09/2020 Car a/c DR
To bank a/c
(Being car purchased)
2500
2500
26/10/2020 Wages a/c DR
To bank a/c
(Being wages paid)
820
820
31/10/2020 Rent a/c DR
To bank a/c
(Being rent paid)
1000
1000
30/09/2020 Drawings a/c DR
To bank a/c
(being amount withdraw from bank for
holiday)
1600
1600
2. Balancing the accounts so as to bring down an opening balance
Bank a/c
Date Particulars Amount Date Particulars Amount

1/10/2020 To capital a/c 8000 2/10/2020 By Laptop a/c 1000
5/10/2020 To sales a/c 1500 24/09/2020 By Car a/c 2500
21/10/2020 To rent a/c 500 26/10/2020 By Wages a/c 820
31/10/2020 By Rent a/c 1000
30/09/2020 By Drawings a/c 1600
31/10/2020 By balance
carried down
3080
Cash a/c
Date Particulars Amount Date Particulars Amount
1/10/2020 To capital a/c 5200 12/10/2020 By Repairing
laptop a/c
80
23/09/2020 To sales a/c 1500 31/10/2020 By balance
carried down
7120
23/10/2020 To sales a/c 500
Van a/c
Date Particulars Amount Date Particulars Amount
1/10/2020 To capital a/c 3000 31/10/2020 By balance
carried down
3000
Capital a/c
Date Particulars Amount Date Particulars Amount
31/10/2020 To balance carried
down
16200 1/10/2020 By bank a/c 8000
1/10/2020 By Cash a/c 5200
1/10/2020 By Van a/c 3000
Laptop a/c
Date Particulars Amount Date Particulars Amount

2/10/2020 To bank a/c 1000 31/10/2020 By balance
carried down
1000
Purchase a/c
Date Particulars Amount Date Particulars Amount
4/10/2020 To Toys limited 2450 31/10/2020 By balance
carried down
2450
Toys limited
Date Particulars Amount Date Particulars Amount
18/10/2020 To purchase return
a/c
100 4/10/2020 By Purchase a/c 2450
31/10/2020 To balance carried
down
2350
Sales a/c
Date Particulars Amount Date Particulars Amount
31/10/2020 To balance carried
down
3900 05/10/2020 By Bank a/c 1500
23/09/2020 By cash a/c 1500
23/09/2020 By Fred a/c 400
23/10/2020 By Cash a/c 500
Repairing laptop a/c
Date Particulars Amount Date Particulars Amount
12/10/2020 To cash a/c 80 31/10/2020 By balance
carried down
80
Purchase return a/c
Date Particulars Amount Date Particulars Amount

31/10/2020 To balance carried
down
100 18/10/2020 By Toys limited
a/c
100
Rent a/c
Date Particulars Amount Date Particulars Amount
31/10/2020 To bank a/c 1000 21/10/2020 By Bank a/c 500
31/10/2020 By balance
carried down
500
Fred a/c
Date Particulars Amount Date Particulars Amount
23/09/2020 To sales a/c 400 31/10/2020 By balance
carried down
400
Car a/c
Date Particulars Amount Date Particulars Amount
26/09/2020 To bank a/c 2500 31/10/2020 By balance
carried down
2500
Wages a/c
Date Particulars Amount Date Particulars Amount
26/10/2020 To bank a/c 820 31/10/2020 By balance
carried down
820
Drawings a/c
Date Particulars Amount Date Particulars Amount
30/09/2020 To bank a/c 1600 31/10/2020 By balance
carried down
1600

3. Extracting a trial balance as at 31st October 2020
Particulars DR CR
Bank a/c 3080
Cash a/c 7120
Van a/c 3000
Capital a/c 16200
Laptop a/c 1000
Purchase a/c 2450
Toys limited a/c 2350
Sales a/c 3900
Repairing laptop a/c 80
Purchase return a/c 100
Rent a/c 500
Fred a/c 400
Car a/c 2500
Wages a/c 820
Drawings a/c 1600
Total 22550 22550
4. Preparing an Income statement
Particulars Amount
Sales 3900
Less: cost of goods sold
Opening stock 0
Purchases 2450
Less: Purchase return 100

Less: Closing stock 250
Gross profit 1800
Less: Operating expenses
Laptop repairing 80
Wages 820
Rent 1000
Add: Operating income
Rent received 500
Net Profit 400
5. Preparing a statement of financial position
Assets Amount
Fixed Assets
Laptop 1000
Second-hand car 2500
Van 3000
Current Assets
Bank 3080
Cash 7120
Fred 400
Inventory 250
Total Assets 17350

Equity and Liabilities
Equity
Capital 16200
Less: Drawings -1600
Retained earnings 400
Current liabilities
Toys Ltd. 2350
Total equity and Liabilities 17350
6. Detailed evaluation of all the answers in an appropriate and impactful way
The expense that has been done on the holiday will be treated as drawings expenses and will
be regarded as a personal one instead of a business one (Wilson and Wilson, 2017). Since the
amount that has been spend does not have any relation with the business at all and thus it is
solely done for the personal purposes by Linda, hence it can be said that the expenses that are
done all will be treated as drawings as it is done for many purposes like considering both that is
company and owner a separate one and in the absence of it both can be treated as one which is
not at all possible in a business firm especially the one that is mentioned above (Lee and Lee,
2017).
PART 2
1. Calculation of different type of ratios that posses a lot of importance in the current scenario for
the above mentioned company
Net profit margin Net profit/sales*100
Net profit 400
sales 3900
Net profit margin 10.26 %
Gross profit margin Gross profit/sales*100
Gross profit 1800

sales 3900
Gross profit margin 46.15%
Current ratio Current assets/current
liabilities
Current assets 10850
Current liabilities 2350
Current ratio 4.62 times
Acid test ratio Quick assets/current
liabilities
Quick assets 10600
current liabilities 2350
Acid test ratio 4.51 times
Accounts receivable collection period Sales/accounts receivables
sales 3900
accounts receivable 400
Accounts receivable collection period 9.75
Days 37.44
Accounts payable turnover ratio Purchase/accounts payables
Purchase 2450
Accounts payable. 2350
Accounts payable turnover ratio 1.042553191
days 350
2. Comparison of the above calculated ratios including their interpretation
Particulars Industry’s ratio Linda’s business ratio

Net profit margin 31% 10.26%
From the above it can be clearly seen that the profit margin of Linda’s business is lacking
far behind the industry’s ratio and it is a big cause of worry as it is directly related with the
profitability of the firm in the long run. Since the margin difference is quite huge that is around
20% which is not at all acceptable in the market as Linda’s business ratio is 10.26% as compared
to that of 31% of industry. Thus the main reason behind it is the expenses that are incurred on the
daily activities that are performed in it which are not generated enough return as it is expected
(Liu, 2017).
Particulars Industry’s ratio Linda’s business ratio
Gross profit margin 54% 46.15%
It can be seen that though in the net profit margin Linda’ business is lacking far behind it
has recovered a lot in it and there is no such different as compared with the industry’s ratio. Still
it is lacking behind around 9% as it is 46.15% for Linda’s business whereas it is 54% in the
industry but the difference is acceptable enough and it can be said that company has very well
managed their cost of goods sold as in comparison with the one that is prevailing in the industry
(Martin and Tian, 2016).
Particulars Industry’s ratio Linda’s business ratio
Current ratio 2.87 times 4.62 times
From the above it can be seen that Linda’s business is performing an exceptional job in
the regard of current ratio as it has managed to maintain almost double ratio as compared to the
one that is prevailing in the industry and this shows that the current assets of the company are
very well placed and are capable enough to pay off its current liabilities and that too in an
effective and efficient manner. The ratio of Linda’s business in this regard is 4.62 times as
compared with 2.87 times of that of industry (Oh, 2018).
Particulars Industry’s ratio Linda’s business ratio
Quick ratio 1.35 times 4.51 times
It can be seen from the above that in quick ratio too Linda’s business is performing very
well as compared to that of industry as it has kept a fair margin as it is 4.51 times as compared to
1.35 times for Linda and industry respectively. It shows that the firm is very well able to
maintain its expenses that are of short term in nature which possess a lot of value in the current
market and thus proves beneficial in the long run (Roberts and Laramee, 2018).

Particulars Industry’s ratio Linda’s business ratio
Account receivable days 50 days 37 days
Since accounts receivable helps in determining the number of days the amount of the firm
is truck in the market to debtors and it can be evaluated form the above that Linda’s business has
done a commendable job in this regard too as it is getting back its struck amount in 37 days as
compared to 50 days of that of industry. It means that the amount can be further reinvested and
the supply chain will perform smoothly without any complications in the near future (Sunarya,
Nurhaeni and Haris, 2017).
Particulars Industry’s ratio Linda’s business ratio
Account payable days 72 days 350 days
Accounts payable is the number of days the amount of the creditors is kept with the
company and it is preferable at the higher side as the amount can be used at a place that gives
higher rate of return and thus Linda’s business has performed effectively in this aspect as the
number of days for it in this is 350 as compared to that of industry’s 72 (Van Rijmenam and
Ryan, 2018).
Overall analysis- From the above calculations and interpretations that has been done it can be
said that apart from one ratio that is net profit margin, Linda’s business firm is performing
exceptionally well in the market and is placed well ahead of its competitors that are operating in
the similar market conditions (Wahito, 2018).
CONCLUSION
From the above it can be concluded that the business unit of Linda is well placed in the
current scenario and also performing good enough in the industry.

REFERENCES
Books and journals
Bernaz, N., 2016. Business and human rights: History, law and policy-Bridging the
accountability gap. Taylor & Francis.
Lee, M. and Lee, S., 2017. Identifying new business opportunities from competitor intelligence:
An integrated use of patent and trademark databases. Technological Forecasting and
Social Change, 119, pp.170-183.
Liu, H., 2017. Chinese business: Landscapes and strategies. Taylor & Francis.
Martin, B. and Tian, X., 2016. Books, bytes and business: the promise of digital publishing.
Routledge.
Oh, I., 2018. Mafioso, Big Business and the Financial Crisis: The State-Business Relations in
South Korea and Japan. Routledge.
Roberts, R.C. and Laramee, R.S., 2018. Visualising business data: A survey. Information, 9(11),
p.285.
Sunarya, P.A., Nurhaeni, T. and Haris, H., 2017. Bank Reconciliation Process Efficiency Using
Online Web Based Accounting System 2.0 in Companies. Aptisi Transactions On
Management, 1(2), pp.124-129.
Van Rijmenam, M. and Ryan, P., 2018. Blockchain: Transforming your business and our world.
Routledge.
Wahito, I., 2018. Effect of transaction costs on international remittance flows from developed
countries: A Sub-Saharan context (Doctoral dissertation, University of Cape Town).
Wilson, C. and Wilson, P., 2017. Make poverty business: increase profits and reduce risks by
engaging with the poor. Routledge.