Recording Business Transactions

This report discusses the recording of business transactions and its importance in resource allocation. It covers journal entries, ledger accounts, trial balance, income statement, and financial position. It also includes the calculation and interpretation of ratios and a comparison with industry standards.

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............................................3
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 analysis and evaluation of all the answers in a sequential and impactful manner....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 of the transactions that are done in the business are very important as well as
crucial from all aspects as it helps in appropriate and precise allotment and allocation of all the
resources that are available with the company and that too within a limited time period with full
efficiency and effectiveness (Chenoweth and Bird, 2018). In this report there is a brief discussion
of a firm that was started by a person named Linda which deals in the buying and selling of
different types of toys with effect from 1st October 2020. Apart from this the report also covers
necessary journal entries, ledger accounts, calculation of trial balance, and income statement of
the same. Further this report also covers calculation and interpretation of various types of ratios
that are based on a comparison that has been done of Linda’s business and industry in a
systematic manner.
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
(Being amount paid for repairing laptop in
cash)
80
80
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 analysis and evaluation of all the answers in a sequential and impactful manner
The issue which was the identification of the expenses and the possible treatment of the
same, it can be said that the expenses that are done on holiday it will be considered as personal
expenses since these are done for the sake of personal enjoyment and experiences which has no
relation with the working of the company. Thus all the expenses that are done for personal use
that are not related with the operation of the business will all be treated as drawings and will go
to the sub head that is containing similar expenditures like that. As both entity and owner are
treated as different individuals all the expenditures will be treated and evaluated separately and
will not be considered as one (Child and Lu, 2018).
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%
It can be seen from the above that the firm which is owned by Linda is not performing up
to the expectations since the net profit margin which is one of the most critical aspect for every
business is only 10.26% for it as compared with the ratio of 31% of the industry. There could be
many reasons for such a worse performance of the company but the main one of them can be

increased in expenditure and decrease in the returns that was generated with those expenditures
and hence resulted in decreased net profit margin ratio and the company must take appropriate
measures and steps so that the enterprise can perform better in the market conditions that are
highly competitive and dynamic in nature (Kabanda and Brown, 2017).
Particulars Industry’s ratio Linda’s business ratio
Gross profit margin 54% 46.15%
From the above it can be seen that there is not a huge margin between the both but still
Linda’s business is lacking behind as compared with the industry’s ratio as the ratio is 46.15%
and 54% respectively. Thus it can be said that though the firm has to take necessary measures to
cover up this margin but still this much deviation is acceptable enough and can be ignored at
times (Lichtenthal, 2020).
Particulars Industry’s ratio Linda’s business ratio
Current ratio 2.87 times 4.62 times
It is one of the most simplest and easiest ratio to calculate still it carriers a lot of value as
it helps in determining the short term paying capacity of the firm and it can be said from the
above that Linda’s business firm is performing exceptionally well in this regard as the ratio is
4.62 times for it as compared with 2.87 times that of industry. Thus it Linda’s business is capable
of paying off its current liabilities with that of the current assets that the firm possesses and thus
it can be said that the enterprise its positioned at a good place in the market (Quintanilla and
Wahl, 2018).
Particulars Industry’s ratio Linda’s business ratio
Quick ratio 1.35 times 4.51 times
Linda’s business is performing a pretty good job in this one too as the previous one and
the ratio is far more than that of industry as it is 4.51 times and 1.35 times respectively and thus
the earlier firm has a strong line up of assets that are well capable of paying off all the liabilities
that are of current in nature which is one of the most strongest point of the company which will
also prove beneficial for it in the long run context (Riswan, Suyono and Mafudi, 2017).
Particulars Industry’s ratio Linda’s business ratio
Account receivable days 50 days 37 days
It is the ratio that helps in understanding and determining the time period in days for
which the amount of the firm was struck in the market with its debtors and thus it is preferred at

a lower side as the fund can be used to maintain an intact supply chain which can prove useful
for the company. Linda’s business is placed at a god position in this aspect too as the collection
period is 37 days as compared with that of industry’s 50 days (Rutland, 2018).
Particulars Industry’s ratio Linda’s business ratio
Account payable days 72 days 350 days
This ratio helps in determining the number of days for which the amount of the creditors
was kept with the firm in terms of days and thus it is preferred at a higher side as the amount can
be reinvested at other places that can fetch higher returns within a short period of time that can
carter the needs and requirements of the organisation. Linda’s business is performing well in this
aspect too as the payment period is 350 days as compared with that of industry’s 72 days
(Subramanian, 2017).
Overall analysis- It can be analysed from all the calculations that has been done above that
Linda’s business is performing well in almost every areas apart from some and if it can manage
to overcome all those too it can prove beneficial for it in sustaining in the competitive market for
a longer time period as compared with its rivals that are working in the similar industry.
CONCLUSION
From the above it can be concluded that the firm which is owned by Linda is positioned well
in the industry and is performing like that too which can help it to grow and prosper in the long
term context.

REFERENCES
Books and journals
Chenoweth, J. and Bird, J., 2018. The business of water and sustainable development. Routledge.
Child, J. and Lu, Y. eds., 2018. Management Issues in China: Volume 2: International
Enterprises (Vol. 24). Routledge.
Kabanda, S. and Brown, I., 2017. A structuration analysis of Small and Medium Enterprise
(SME) adoption of E-Commerce: The case of Tanzania. Telematics and Informatics.
34(4). pp.118-132.
Lichtenthal, J. D., 2020. Fundamentals of business marketing education: A Guide for University-
Level Faculty and Policymakers. Routledge.
Quintanilla, K. M. and Wahl, S. T., 2018. Business and professional communication: keys for
workplace excellence. Sage Publications.
Riswan, R., Suyono, E. and Mafudi, M., 2017. Revitalization model for village unit cooperative
in Indonesia.
Rutland, P., 2018. Business and state in contemporary Russia. Routledge.
Subramanian, D., 2017. Telecommunications industry in India: State, business and labour in a
global economy. Routledge.