This assessment focuses on recording business transactions in books of accounts, such as journal and ledger. It also discusses the importance of accounting information for decision-making and explores the advantages and disadvantages of accounting. Additionally, it provides insights into the impact of Covid-19 on business profitability.
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Recording Business Transactions 1
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Table of Contents Introduction......................................................................................................................................3 Assessment 1....................................................................................................................................3 Part 1.......................................................................................................................................3 Part 2.......................................................................................................................................5 Part 3.......................................................................................................................................6 Part 4.......................................................................................................................................8 Conclusion.......................................................................................................................................9 2
Introduction Accounting is primarily concerned with recording and summarising events that are of the financial nature in the books of accounts. These financial data are then interpreted to prepare various financial statements and reports which is then further used by management and investors to make informed decision. This assessment is aimed at demonstrating recording of business transactions in books of accounts like journal and ledger to prepare trial balance and income statement. Further, decision-makers in Google LLC are identified and their usage of accounting information is discussed. Advantages and disadvantages encountered by accountants while recording accounting information and the impact of Covid-19 on the profitability of the business are also discussed in the assessment. Assessment 1 Part 1 A. Decision-makers in Vodafone and the need of accounting information Strategic decision-making of the company stems from its organisational structure and inspires its organisational culture as well. Google follows a cross-functional organisational structure which is a combination of matrix and flat structure. Decision-making is necessary at all levels of management in a company but the strategic decision-making is made by top level management of the company. Senior management needs to encompass both financial as well as non-financial information while making a holistic decision. Google has a defined value structure which guides all the decisions taken in the company. Senior management devises strategies which are passed in the form of guidelines to middle level managers who are made further responsible to pass on instructions to the teams working beneath them. All the decisions that are taken by the board of directors of the company are either based on the informationanalysedout of financialstatementsor influencedfrom it.Financial statements i.e. income statement, statement of financial position and cash flow statement reflect financial position and performance of the company. These are prepared by the accounts department of the company as per the International Financial Reporting Standards (IFRS) and used by finance managers to interpret so that they can further assist board of directors in making effective decisions related to planning, operating and controlling. These accounts are used to prepare budgets and forecasts i.e. historical information of the business is adjusted according to 3
the present situations to determine the course of futureactivities of the business. Other than vertical analysis of business data, management also uses these accounts to compare their performance with other competing companies in the industry. Since, accounts are prepared on the basis of IFRS, standard data is obtained which is comparable with other companies' data which is prepared applying IFRS standards. Management also uses accounting information to assess the feasibility and viability of the business opportunities that comes its way. These analysis are not only used by management but by investors also to make informed decisions about their investments. B Advantages and disadvantages of accounting Accounting includes recording, classifying, summarising, analysing and interpreting transactions of the business which are of financial nature. These are to be recorded in the books of accounts to be further interpreted into financial statements to be used for further decision- making. Advantages and disadvantages of accounting for accountants are below mentioned: Advantages: Evidence in legal matters – Accountants have to prepare books of accounts of a company in accordance with the Generally Accepted Accounting Principles (GAAP). These are then to be further audited by independent auditor. These accounts are used by company to determine its tax liabilities as they are accepted as legally accepted by tax authorities. These accounts can also be presented as legal evidence in courts to represent stand of the company. Decision-making – Accountants record all the transactions of the business in the books of accounts and then prepare financial statements out of them. These statements are then taken by senior management of the company to make informed decisions. Accountant assist management in taking those decisions by further analysing those statements and reports and prepare budgets, cash flow forecasts, trends, ratio, etc. Accountants also convert non-financial data related to the business into quantifiable terms so that they can be used by management to decide and devise further strategies. Disadvantages: Only financial information is recorded – Accountants are entrusted to assist management in decision-making but only financial aspects of the business transactions are recorded ignoring non-financial information which lays significant impact on the business of the 4
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company such key performance indicators, market and political situations, etc. This then led to decision-making on the basis of incomplete decisions. Further, entries are recorded on the historical cost basis and they are not updatedaccording to the present market value which also leads to decision-making on the incorrect basis. Personal bias – Accounts are to be prepared according to GAAP but still interpretation of the transaction to be recorded in the books of accounts is dependent on the accountant which creates room for the possibility of biased interpretation. Incorrect interpretation on the part of accountant can distort information which will lead to incorrect financial statements. Also, this gives rise to chances of financial frauds and manipulations which is capable of bringing both financial as well as reputation harm to the company. Part 2 Recording in books of primary recording – Journal Journal of David Wise (for the month of February 2020) DateParticularsDebit (in £)Credit (in £) 01stFeb 20Asma_ Limited_ A/c.Dr. To Office_ fixtures_ A/c (Unsuitable office fixtures returned) 350 350 4thFeb 20Bad_ debt_ A/c.Dr. To S_ Keyes_ A/c (Debtor written off as bad debt) 85 85 9thFeb 20Machinery_ A/c To Bank_ A/c To TS_ Co._ A/c (Machinery purchased on part credit) 2300 200 2100 13thFeb 20Bank_ A/c.Dr. Bad_ debt_ A/c.Dr. To S_ Hill_ A/c (part payment receivedfrom debtor as final 220 50 270 5
settlement) 20thFeb 20Drawings_ A/c.Dr. To Purchases_ A/c (Goods withdrawn for personal use) 180 180 26thFeb 20Drawings_A/cDr. To Insurance_A/c (Personalinsurancewronglydebitedto business now corrected) 85 85 28thFeb 20TS_ Co_ A/c.Dr. To Bank_ A/c (Partpaymentmadeformachineryto vendor) 1050 1050 Part 3 A. Transaction recording in ledger Accounts of Pearce & Sons 6
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B. Trial Balance as at 28thFeb 2020 Trial Balance of Pearce & Sons (as at 28thFeb 2020) ParticularsDebit ( in £)Credit ( in £) Capital...Account...47300 Bank...Account...12230 Cash...Account..1080 Van..Account....35000 Quick..Office Ltd...Account....1100 Office..Fixture..Account.....2590 Loan..Account...2500 Total...5090050900 Part 4 A. Income Statement for Airman Co. for the year ending 30thSeptember 2020 Profit & Loss Account... (for the year ending 30thSeptember 2020) ParticularsAmt (£)ParticularsAmt (£) Opening..Stock..36000Sales.....80000 Purchases...150000Less: Returns..Inwards....-200078000 Less: Returns..Outwards..-600149400Closing..Stock...120000 Carriage..Inwards...720 Gross..Profit..c/f..11880 ..Total..198000...Total..198000 8
Carriage..Outwards..400Gross..Profit..c/d...11880 Motor..Expenses..1200 Rent..5000 Telephone..Charges..620 Wages..and..Salaries..32000 Insurance....830 Office..Expenses...600 Sundry..Expenses...300 Net..Loss...-29070 ..Total..11880..Total..11880 B. Impact of Covid-19 on profitability of the business In the given scenario, it has been presented that mentioned company has been operating since long and been stably declaring profit from last 10 years. But, as calculated above, in the current financial year, company has registered loss and this loss can be attributed to the instability in the market conditions in which it operates. Market conditions of the economy in which business operates plays a crucial role in profitability of the business. Stability in the market conditions are subjected to influences from factors such as political environment, social environment, legal environment, etc. In the year 2020, dominant force influencing probability of the basis can be deemed to be disruptions caused by Covid-19 pandemic and consequent lock- down. Situationspresentedby pandemichavenotbeenobservedbeforeandso arethe consequent disruptions which makes comparing current financial year's performance with last yearsnotappropriate.Tosafeguardlives,lock-downwasimposedwhichresultedin obstructions in production, logistics, supply chain, etc. This increased costs while reducing sales at the same time. Fixed charges were being paid like earlier and in the wake of increased cost, managing cash flow was getting difficult. However, it is very difficult to determine the exact 9
force and impact that pandemic brought upon the profitability of the business. Moreover, from the information provided, it can be seen that company maintains October to September as financial year. Pandemic disrupted businesses from later part of March when lock-down was imposed throughout country. This means that impact of Covid-19 on the probability of the business was largely restricted to last two quarters of the current financial year and it is safe to assume that loss made due to pandemic restrictions surpassed profit earned during the year. Conclusion Above assessment includes demonstration of recording business transactions in books of accounts such as journal and ledger. Also, preparation of trial balance and income statement has also been elucidated above. Further in the above assessment, it can be understood that strategic decision-making in a company is a function of its senior management and they use financial statements for making informed decisions. 10