Recording Business Transaction: Journal Entries, Trial Balance, Financial Position, and Ratios

This study provides information on recording business transactions, including journal entries, trial balance, income statement, balance sheet, and financial position. It also calculates ratios and evaluates the organizational performance and impact of COVID-19.

RECORDING BUSINESS
TRANSACTION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................2
PART A...........................................................................................................................................2
a) Recording journal entries in T account.................................................................................2
b) Balancing the account in ledger format...................................................................................5
c) Formulating trial balance.......................................................................................................16
d) Preparing income statement..................................................................................................18
e) Formulating financial position...............................................................................................20
f) Writing letter..........................................................................................................................22
PART B.........................................................................................................................................23
a) Determining ratios.................................................................................................................23
b) Evaluating organizational performance and impact of covid 19...........................................26
CONCLUSION..............................................................................................................................27
REFERENCES..............................................................................................................................28

INTRODUCTION
Recording business transaction refers to keeping information about the all the transaction
that are executed for particular span of period. In the current era, competition has inclined which
require firm to pay attention on having significant information regarding the prevailing
circumstances so that higher level of ability to make strategic decision can become possible.
There is major need to pay attention on having relevant understanding about the basic tactics
which can allow to incline efficiency of conducting operational activities to get success. There
are several aspects which are required to be taken into consideration so that higher profitability
& stability providing decision can be formulated. The current study will pay attention on having
significant information regarding journal entries, balancing the account to get an opening
balance, trial balance, income statements, financial position and writing letter. This current study
will give emphasis on calculating ratios and having information related with evaluating
performance of company along with assessing impact of covid 19.
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MAIN BODY
PART A
a) Recording journal entries in T account
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b) Balancing the account in ledger format
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c) Formulating trial balance
Trial balance has been prepared for the year ended 31st October 2021 which can allow to
get the information regarding the prevailing circumstance of business. It has been prepared by
recording the transaction in debit and credit side.
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d) Preparing income statement
Income statement is one of the crucial financial statement that pay attention on
having the significant information regarding the earnings and expenditure of particular period
(Arslan, 2021). The particular statement comprises the expenditure of both direct and indirect
nature that are basically executed for gaining information regarding the prevailing activities. It
as well pay attention on providing details about earning obtained from sources such as sales
revenue, rent received, etc. It allows to ascertain data regarding cost of goods sold and higher
profitability generating capacity.
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From the evaluation of above provided information it can be specified that
there are several expenses which are executed by the company for accomplishing the
organizational objectives. There are several kinds of benefits which can be obtained by specified
organization is having information related with the profitability and stability so that gaining
competitiveness can become possible. The current investigation has given emphasis on
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evaluating the result which has derived after spending cost on repair of printer, wages, etc. has
lead the frim towards loss the earning that has been received by firm in indirect form is
obtaining income from the rennet activity. On the basis of provided information related to loss it
can be analysed that there are several lacking areas which are not properly managed by
organization. There is need to make improvement strategy application for gaining the significant
profitability in turn stability for longer duration can be attained. To become successful in the
current competitive scenario there is requirement to identify the lacking areas which is hindering
growth & development of organization so that eliminating such expenses which are not allow to
have productive outcome. On the basis of this, it can be recognized that there are these
limitations which are needed to be focused for gaining competitive position.
e) Formulating financial position
Balance sheet is prepared to have summarized details about the performance of
company at the end of the year. This provides assistance in gaining the information about the
several aspects such as current ability to pay off liabilities. The current financial position of the
organization has been estimated by applying accounting equation which includes assets equals
to liabilities plus equity. This allows to get the entry recorder via using double entry
system so that overall picture of company can be covered so that interpreting the financial
position can be identified.
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From the evaluation of given table above it can be mentioned that financial position of
the company is good as there is enough availability of current assets to overcome short term
liabilities so that higher credibility can be identified. There are various kinds of current assets
which can be included bank, cash, debtor and closing stock. On the other side, the short term
liabilities which can creditor that can impact the financial position of the company. There are
few fixed assets as well that has been invested by the organization for gaining greater
operational efficiency in turn meeting market forces can become possible. In the equity part of
the balance sheet, there is involvement of capital which is decreasing by withdrawal made for
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personal use. In addition to this, net loss occurred by the organization is impacting the position
of company and reducing the capital possessed by organization. on the basis of this, it can be
specified that there is requirement of making certain changes in turn gaining depth
understanding about the organizational performance can be derived. There are several benefits
of using the balance sheet into decision making procedures it allows to get the relevant insights
about the decision making procedure so that higher profitability and stability in overall
functioning of company can be obtained. This can permit the enterprise to get the capability to
function effectively in turn meeting organizational objective by maintaining competitive position
can become possible.
f) Writing letter
To Owner
Subject: Concern for withdrawal
In the recent business environment, competition has inclined which has increased
complexities to function in the industry. As being sole trader it is important for the organization
to pay attention on getting the effective strategy which can contribute in achieving success.
There are several internal and external components that impact the smooth processing of
company. It becomes essential for the management of the company to focus on recognizing the
lacking areas that can increase the productiveness. this limitations of business can be assessed
by referring the income and financial position prepared so that higher profitability to add value
to strengthening company’s position.
From the analysis of the prepared income statement it can be mentioned that there are
several expenses which are executed by organization for gaining capability to coordinate with
prevailing circumstances (Wang and Kogan, 2018). On the basis of conducted evaluation, it can
be specified that there is various component which are not properly focused that is leading firm
towards non-significant growth and development. There is lack of proper management and
identification of appropriate allocation and utilization of resources which has hampered the
growth & development of business. In order to become successful, the firm need to pay
attention on eliminating of such non relevant expenses so that higher profit margin can be
formulated. In respect to get the higher profitability and stability the firm is need to focus on
implementing such course of action that has capability to boost performance via optimizing
resources. Sole trader does not have such ability to manage the operational activities in relevant
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manner which can hamper the growth & development of business. The specified owner should
concentrate on optimum utilization of resources via ensuring achieving of competitive position.
The formulated financial position of the business is reflecting that there is less availability of
short term debt which might influence the functioning of organization. there is availability of
current assets that includes cash, debtor, etc. which is helpful in assessing that firm is obtaining
roper efficiency to coordinate with prevailing circumstances. From the analysis it can be
mentioned that frim is possessing capital which is negatively impacted by the loss incurred in
the particular period. There are irrelevant expenses which has been made by the owner for own
travel which is adversely affecting the performance of the company that is required to be
managed by the organization by the company. Withdrawing fund can largely impact the
organizational ability to meet requirements so that higher profit earning get affected. On the
basis of this, it become important for the owner to pay attention on eliminating such personal
expenses in order to have higher profitability. This can allow the organization to ensure that
proper utilization of resources along with strategic management can permit the business to have
the ability to get the leading position in sector (Cai, 2021). For this purpose, it is suggested to the
owner to emphasize on getting the effective position by developing optimum utilization,
eliminating irrelevant expense, diversification of fund, etc. through focusing on accurate use of
available capital. In addition to this, as being sole trader specified proprietor can pay attention on
avoiding making withdrawal as it can impact in negative manner.
PART B
a) Determining ratios
Ratio technique is one the significant approach that is taken into consideration for
evaluating the organizational performance by referring different aspects so that higher profitable
decision can be made (What is Ratio Analysis? 2020). In the current era, complexity regarding
the operational practice has increased which require firm to pay attention on getting the relevant
information about firm so that strategy can be formulated. The current study has given emphasis
on gaining the proper data about the specified business performance so that various benefit
providing decision can be made. There are number of benefits of using the ratio analysis which
involves forecasting, budgeting, measuring operational efficiency, communication of significant
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data, control of performance & cost, indication of liquidity position determination of solvency
condition, etc. with help of this method, Anne’s business can evaluate and compare its position
in the sector so that higher profitability can stability offering decision can be made. There are
different kinds of rations which aids in assessing the limitations that are possessing in different
areas that includes gross, net profitability, current, quick, account receivable and payable
payment. The computation of ratio is as follows:
Profitability is one of the significant ratio that is helpful in assessing the ability of the company
to generate profit (Thottoli and et.al., 2021). Gross profit helps in estimating efficiency of firm
regarding reducing cost of goods sold. In addition to this, net profitability is helpful in figuring
out that how effectively organization can make profit by making sales.
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liquidity ratios are estimated for evaluating the capability of the firm to use its resources
to overcome current liabilities (Maheshwari, Maheshwarim and Maheshwari, 2021). the current
study regarding quick ratio is helpful in assessing how business can overcome current liabilities
with help of short term assets. Current ratio allows to analyse how organization can handle its
short term liability with help of cash & equivalent resources.
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Efficiency ratio is helpful evaluating the performance of company to maintain
relationship with its trader and creditors. Trade receivable is helpful in assessing how effectively
company can collect its due payments from the customers. Trade payable is helpful in
estimating how the firm is paying off payment to creditors.
b) Evaluating organizational performance and impact of covid 19
From the evaluation of the computed ratios obtaining relevant information and
comparing the figures so that higher effective decision can be made there are several types of
stakeholders who uses this information to make strategic decision (Reid and Myddelton, 2020).
The profitability ratio of the company in terms of gross is indicating that firm has obtained 94%
margin. The ideal gross profit ratio is 20% which is less than company that is indicating that
effective performance is made by organization. the competitors’ performance for the three years
such 2019, 2020 and 2021 is lesser than the derived outcome of Anne’s business. Net
profitability of the firm is having 77% which is higher than depicted performance of competitors
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which is indicating that firm is possessing that greater profitability than the competitor results.
On the basis of this, it can be articulated that organizational performance in terms of profitability
is good.
From the analysis of the given data, it can be mentioned that liquidity of Anne’s
business is good. The current study regarding ratio computed that quick ratio of the firm is 3.014
times which is greater than 1 times standard benchmarking established for the specified ratio.
This is helpful in assessing that business is gaining proper ability to overcome the short term
liabilities. In addition to this, current ratio of the firm is having 3.08 times that is higher than
stand performance established. On the basis of this, it can be identified that liquidity position of
the business is highly effective which is reflecting good financial condition of enterprise. There
are number of stakeholders who pay attention on gaining information about liquidity which is
positive sign for them to make decision regarding organizational performance which includes
investors, creditors, etc.
Efficiency play major role in affecting the stakeholders’ decision which involves how
business is maintaining enough resources to meet the requirements of organization. Trade
receivable is indicating how organization is receivable the payments from the customer on
goods are sold on credit. This ratio of Anne’s business is having 10 days which is less as
compared to organizational performance shown by similar firms operating in sector. From the
evaluation of trade payable period of the business is 25.51 days which is basically more than
current performance of the competitors which is negative sign needs organization to make
improvements so that higher trustworthiness & credibility in sector can be received.
Covid 19 as being pandemic circumstances has highly affected the performance of
enterprises as impacted access to resources, availability of employees, customer, etc. factor in
negative manner. Anne’s business is having good financial condition which is indicating that
business is having good financial health.
CONCLUSION
From the above report it can be concluded that recording business transaction allows to
have effective ability to make decision. The current study has given emphasis on having
information regarding journal, ledger account, trail balance, income statement and balance sheet.
It has involved calculation of ratios and interpretation that Anne’s business is performing good
without being impacted from covid 19
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REFERENCES
Books and Journals
Arslan, Ö., 2021. Modern Approaches, Recording Methods, and International Regulations on
Public Accounting. In Contemporary Issues in Public Sector Accounting and Auditing.
Emerald Publishing Limited.
Cai, C.W., 2021. Triple‐entry accounting with blockchain: How far have we come?. Accounting
& Finances. 61(1). pp.71-93.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Reid, W. and Myddelton, D.R., 2020. The meaning of company accounts. Routledge.
Thottoli, M.M and et.al., 2021. Does Creditors Terms and Accounting Process Affect MSMEs
Debtor’s Management? The Need for Novel IT Tools. REVISTA GEINTEC-GESTAO
INOVACAO E TECNOLOGIAS. 11(4). pp.4545-4560.
Wang, Y. and Kogan, A., 2018. Designing confidentiality-preserving Blockchain-based
transaction processing systems. International Journal of Accounting Information
Systems. 30. pp.1-18.
Online
What is Ratio Analysis?. 2020. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/ratio-analysis/ >.
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