Recording Business Transactions - Desklib

This document provides a detailed guide on recording business transactions, balancing accounts, and preparing financial statements. It includes examples and explanations for each step. The document also includes a recommendation letter and financial ratios for Linda's business. Subject: Accounting, Course Code: BA3UK92O, Course Name: Recording Business Transactions, College/University: Not mentioned

PROJECT 2
RECORDING BUSINESS TRANSACTIONS
BA3UK92O
March 12, 2021

Table of Contents
March 12, 2021............................................................................................................................................1
b) Balancing the accounts and bringing down an opening balance.........................................................6
c) Extracting the trial balance as at 31stOctober 2020..........................................................................12
d) Preparing the Income Statement for the period ended 31st October 2020:.....................................13
e) Preparing the Statement of Financial Position as at 31st October 2020:...........................................15
f) Linda’s recommendation letter..........................................................................................................16
PART B.......................................................................................................................................................17
I)CalculatingFinancialRatios for Linda’s business as at 31st October 2020............................................17
II) Performance of Financial Ratios for Linda’s business as at31st October 2020..................................19
References.................................................................................................................................................21

PART A
a) Recording the transactions in T- accounts.
CAPITAL A/C
Date Details Amount
GBP
Date Details Amount
GBP
01/10/202
0
Bank 8,000
01/10/202
0
Cash 5,200
01/10/202
0
Vehicles 3,000
Bank A/C
Date Details Amount
GBP
Date Details Amount
GBP
01/10/202
0
Capital 8,000 02/10/20
2
Laptop 1,000
05/10/202
0
Sales 1,500 24/10/20
2
Car 2,500
21/10/202
0
Lease 500 26/10/20
2
Wages 820
30/10/20
2
Rent paid 1,000
31/10/20
2
Drawings 1,600
CASH A/C
Date Details Amount
GBP
Date Details Amount
GBP

01/10/202
0
Capital 5,200 12/10 Laptop 80
23/10/202
0
Auctions 1,500
23/10/202
0
Auctions-
Fred
500
Equipment expenses A/C
Date Details Amount
GBP
Date Details Amount
GBP
01/10/202
0
Vehicles 3,000
02/10/202
0
Laptop 1,000
24/10/202
0
Car 2,500
Purchases A/C
Date Details Amount
GBP
Date Details Amount
GBP
04/10/202
0
Toys 2,450 18/10/20
2
Toys
returns
100
12/10/202
0
Laptop 80
Accounts receivable A/C
Date Details Amount
GBP
Date Details Amount
GBP
23/10/202
0
Fred 400

SALES A/C
Date Details Amount
GBP
Date Details Amount
GBP
05/10/202
0
Sales 1,500
23/10/202
0
Sales 1,900
23/10/202
0
Sales 500
RENT A/C
Date Details Amount
GBP
Date Details AmountGBP
30/10/202
0
Rent 1,000
Accounts Payable A/C
Date Details Amount
GBP
Date Details AmountGBP
18/10/202
0
Toys
returns
100 04/10/20
2
Toys
Ltd
2,450
WAGES A/C
Date Details AmountGBP Date Details AmountGBP
26/10/202
0
Wages 820
DRAWINGS A/C

Date Details AmountGBP Date Details AmountGBP
31/10/202
0
Drawings 1,600
Other Income A/C
Date Details AmountGB
P
Date Details AmountGBP
21/10/202
0
Rent 500
b) Balancing the accounts and bringing down an opening balance
CAPITAL A/C
Date Details AmountGBP Date Details AmountGBP
31/10/202
0
BalanceC/D 16,200 01/10 Bank 8,000
01/10 Cash 5,200
01/10 Van 3,000
16,200 16,200
01/11 Balance
B/D
16,200
BANK A/C
Date Details AmountGBP Date Details AmountGBP
01/10/202
0
Capital 8,000 02/10/20
2
Laptop 1,000
05/10/202
0
Sales 1,500 24/10/20
2
Car 2,500

21/10/202
0
Lease 500 26/10/20
2
Salary 820
30/10/20
2
Lease 1,000
31/10/20
2
Drawings 1,600
31/10/20
2
Balance
C/D
3,080
10,000 10,000
01/11/202
0
Bal
B/D
3,080
CASH A/C
Date Details AmountGB
P
Date Details AmountGBP
01/10/202
0
Capital 5,200 12/10/ Laptop
mend
80
23/10/202
0
Auctions 1,500 31/10 Bal C/D 7,120
23/10/202
0
Auctions-
Fred
500
7,200 7,200
01/11/202
0
BalanceB/D 7,120
Equipment expenses A/C
Date Details AmountGB
P
Date Details AmountGBP
01/10/202 Vehicles 3,000 31/10/ Bal C/D 6,500

0
02/10/202
0
Laptop 1,000
24/10/202
0
Car 2,500
6,500 6,500
01/11/202
0
BalanceB/D 6,500
PURCHASES A/C
Date Details AmountGB
P
Date Details AmountGBP
04/10/202
0
Toys 2,450 18/10/ Toys
return
100
12/10/202
0
Laptop
mend
80 31/10 Bal C/D 2,430
2,530 2,530
01/11/202
0
BalanceB/D 2,430
Accounts Receivable A/C
Date Details Amount
GBP
Date Details Amount
GBP
23/10/202
0
Fred 400 31/10/ Balance
C/D
400
400 400
01/11/202
0
Bal B/D 400

SALES A/C
Date Details Amount
GBP
Date Details Amount
GBP
31/10/202
0
Balance
C/D
3,900 05/10 Sales 1,500
23/10 Sales 1,900
23/10 Sales 500
3,900 3,900
01/11 Balance
B/D
3,900
RENT A/C
Date Details AmountGB
P
Date Details AmountGBP
30/10/202
0
Rent 1,000 31/10/20
2
Balance
C/D
1,000
1,000 1,000
01/11/202
0
Bal B/D 1,000
Accounts Payable A/C
Date Details Amount
GBP
Date Details Amount
GBP
18/10/202
0
Toys
returns
100 04/10/ Toys Ltd 2,450
31/10/202
0
Balance
C/D
2,350
2,450 2,450

01/11 Balance
B/D
2,350
WAGES A/C
Date Details AmountGB
P
Date Details AmountGBP
26/10/202
0
Wages 820 31/10/20
2
Balance
C/D
820
820 820
01/11/202
0
Bal B/D 820
DRAWINGS A/C
Date Details AmountGB
P
Date Details AmountGBP
31/10/202
0
Trip 1,600 31/10/20
2
Balance
C/D
1,600
1,600 1,600
01/11/202
0
Bal B/D 1,600
Other Income A/C
Date Details AmountGBP Date Details AmountGBP
31/10/202 Balance 500 21/10/20 Rent 500

0 C/D 2
500 500
01/11/20
2
Bal B/D 500

c) Extracting the trial balance as at 31stOctober 2020
Linda’s Account Trial Balance as at 31/10/2020:
Date Details Dr GBP Cr GBP
31/10/2020 Capital 16,200
31/10/2020 Bank 3,080
31/10/2020 Cash 7,120
31/10/2020 Purchase return 100
31/10/2020 Purchases 2450
31/10/2020 Acc. receivable 400
31/10/2020 Sales 3,900
31/10/2020 Rent paid 1,000
31/10/2020 Acc. payable 2,350
31/10/2020 Wages 820
31/10/2020 Drawings 1,600
31/10/2020 Rent received 500
31/10/20 Van a/c 3000
31/10/20 Laptop a/c 1000
31/10/20 Repairing a/c 80
31/10/20 Car a/c 2500
TOTAL 23050 23050

d) Preparing the Income Statement for the period ended 31st October 2020:
Linda’s Account Income statement as at 31/10/2020
Details GBP GBP
Sales 3,900
Less Cost of sales
+ Purchases 2450
(purchase
return)
(100)
(closing
inventory)
(250)
Gross Profit 1800
Less Operational
expenses
Wages 820
Rent 1,000
1,820
Rent received 500
Net Profit 400

e) Preparing the Statement of Financial Position as at 31st October 2020:
Linda’s Account Statement of Financial Position as at 31/10/2020
GBP GBP GBP
Non current
assets
Equipment
expenses
6,500
Current
assets
6,500
Inventory 250
Accounts
receivable
400
Bank 3,080
Cash in
hand
7,120
10,850
Current
liabilities
Accounts
payable
2,350
2,350
Net current
assets
8,500
TOTAL
ASSETS
15,000
Financed by
Capital 16,200
Add Net profit 400
Less Drawings (1,600)
15,000
CLOSING
CAPITAL
15,000

f) Linda’s recommendation letter
Dear Linda,
I'm writing you this letter regarding your concerns.
Your trip to Florida unfortunately cannot be seen as a business expenses for your small
business.
A business allowed you to pay out money in your company's name if you have a
business reason for this trip. One of the simplest ways to reduce your income tax bill is
to ensure you are claiming all the tax deduction available to your small business. For a
trip to qualify as business travel, it has to be ordinary necessary, and away from tax
home. Taking in consideration this your holiday trip cannot record as a business
expenses, this trip will be recording as drawing.
When you're taking money or goods out of your business for your own personal use this
is known as Drawings.
My recommendation is to not use a business bank accounts to pay personal expenses.
Kind regards,
Daniel.
PART B
I) Calculating Financial Ratios for Linda’s business as at 31st October 2020
1 Net profit
margin
= (Net profit/
Total sales) x
100
=(400/3,900)x
100
= 10,26%
2 Gross profit
margin
=(Gross profit/
Total sales) x
100
=(1800/ 3,900)
x 100
= 46.15%

3 Current ratio =(Current
assets/ Current
liabilities)
= 10,850/ 2,350 = 4,62x
4 Acid test ratio =(Current
assets-
Stock)/Current
liabilities
= (10,850 –
250)/2,350
= 10,660/
2,350= 4,51x
5 Accounts
receivable
collection
period
=(Accounts
receivable
x365)/ Annual
sales
= (400 x
30)/3,900 =
3,84 per month
= (400 x 365)/
3,900 = 37.44
per year
6 Accounts
payable
payment period
= (Accounts
payable x 365)/
Net current
purchases
= (2,350 x
30)/2,430 = 29
per month
= (2,350 x
365)/2,430 =
350 per year

II) Performance of Financial Ratios for Linda’s business as at31st October 2020
Linda’s
business
Competitors
average
Net profit
margin
10,26% 31% This refers to the ratio that
depicts the net profit of the
organist and that leads to
ascertain the net profit of
the organization. This is
very effective ratio that
helps in determining the
financial position of the
organization. The
competitors doing better
than Linda.
Linda should control her
expenses better.
Gross profit
margin
58,97
%
54% This ratio show the
analysis of expenses and
income that is incurred in
order to reveal and
identify the effectiveness
of the company. This is
also very essential ratio
that depicts the financial
stability and maintaining
the operational activities
of the firm. Linda is doing
a little better than
competition. The
competitors should control
better the supply. Maybe
the supply is charging
them too much.
Current Ratio 4,62x 2,87x This ratio shoes the
liquidity of the
organization that how
much it is able to pay its
short term obligation in
short period of time. This
tells the overall liquidity
position and how much
readily cash is available to
make the financial

obligation fulfill. This
helps the company in
analyzing its overall cash
position with the
management. Linda is
doing much better than
competitors.
Both company are doing
well, but Linda is going
much better.
Acid test Ratio 4,51x 1,35x This ratio tells the
efficiency of the firm that
depicts the cash liquidity
of the firm in short term
period of time within the
year. This helps in
analyzing the financial
position that shows that
how effective
management liquidity that
able to fulfill the
obligation in short period
of time period. Obviously
superior to competitors
Accounts
receivable
collection
period
3,84 per
month
37 per year
50 days This ratio is calculating by
the company when divide
the amount that taken by
the debtors for specified
period of time. Collection
period is more proficient
than the opposition.
Accounts
payable
payment
period
29per month
352per year
72
days
Payable period is not as
good as the opposition.
Linda should work in her
collection money. The
ratio doesn't look good.

References
Frank Wood, S. R., 2009. Book- keeping and accounts. Seventh ed. Essex: Pearson
Education Limited.
Cunningham, B., Nikolai, L.A., Bazley, J., Kavanagh, M., Simmons, S. and James, C.,
2020. Accounting: information for business decisions. Cengage AU.
The big list of small business tax deduction(2021) by Janet Berry, CPA on January 25,
2021