Recording Business Transaction Assessment A2

This report addresses different aspects related to recording the business activities of the organisation. It includes journal entries, balance accounts, trial balance, income statement, balance sheet, and ratio calculations.

RECORDING BUSINESS
TRANSACTION
ASSESSMENT A2

Table of Contents
INTRODUCTION...........................................................................................................................3
Part A...............................................................................................................................................3
Journal Entry ...............................................................................................................................3
Balance account ..........................................................................................................................4
Trial Balance ...............................................................................................................................8
Income statement for the year ending 31st October 2020...........................................................8
Balance Sheet as at 31st October 2020........................................................................................9
Brief letter ...................................................................................................................................9
Part B.............................................................................................................................................11
Ratio calculation .......................................................................................................................11
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Recording the business transactions is denoted as maintaining the books of accounts of
company that can reflect about the financial position of the organisation. This report will address
different aspects related to recording the business activities of the organisation. Henceforth,
report will emphasis over projecting the transaction of company based on the double entry book
keeping system maintained by the organisation. Individual ledger account will also project in the
report that can demonstrate precisely the actions taken by entity under te double entry book
keeping system. Trail balance will also reflect in the project. Further the income statement will
project in the project to denote about the profitability situation of the organisation. Letter will
also be summarises to identify the drawing treatment effectiveness of the organisation.
Furthermore, this study will talk about different ratios. Calculation will be shown for different
ratios. Performance of the company will be analysed withy the support of different ratios
calculated in the project.
Part A
Journal Entry
Date Particular Debit Credit
1 October,
2020
Bank a/c
Cash a/c
Van a/c
To Capital a/c
8000
5200
3000
16200
02/10/20 Laptop a/c
To Bank
1000
1000
04/10/20 Purchase a/c
To Toys Ltd.
2450
2450
05/10/20 Bank a/c
To sales
1500
1500
12/10/20 Repairing a/c 80

To cash 80
18/10/20 Toys Ltd. a/c
To Purchase return
100
100
21/10/20 Bank a/c
To rent
500
500
23/10/20 Cash a/c
Fred a/c
To sales
1500
400
1900
23/10/20 Cash a/c
To sales
500
500
24/10/20 Car a/c
To Bank
2500
2500
26/10/20 Wages a/c
To Bank
820
820
30/10/20 Rent /ac
To Bank
1000
1000
31/10/20 Drawing a/c
To Bank
1600
1600
Balance account
Capital Account
Date Particulars Amount Date Particulars Amount
01/10/20 By bank A/c 8000
By Cask A/c 5200
By Van A/c 3000
31/10/20 To Drawings
A/c
1600
To Balance 14600

C/f
01/11/20 By Balance
B/d
14600
Bank Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 8000 02/10/20 By Laptop A/c 1000
05/10/20 To Sales A/c 1500 24/10/20 By car A/c 2500
21/10/20 To Rent A/c 500 26/10/20 By wages A/c 820
30/10/20 By Rent A/c 1000
31/10/20 By Drawings
A/c
1600
By Balance
C/f
3080
01/11/20 To Balance
b/d
3080
Van Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 3000 31/10/20 By Balance
C/f
3000
01/11/20 To Balance
B/d
3000
Laptop Account
Date Particulars Amount Date Particulars Amount
02/10/20 To Bank A/c 1000 31/10/20 By Balance c/f 1000

01/11/20 To Balance
B/d
1000
Cash Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 5200 12/10/20 By Repairs
A/c
80
23/10/20 To Sales A/c 1500
To Sales A/c 500 31/10/20 By Balance
C/f
7120
01/11/20 To Balance
B/d
7120
Toys Ltd. Account
Date Particulars Amount Date Particulars Amount
18/10/20 To Purchase A/c 100 04/10/20 By Purchase A/c 2450
31/10/20 To Balance c/f 2350
01/11/20 By Balance b/d 2350
Purchase Account
Date Particulars Amount Date Particulars Amount
04/10/20 To Toys Ltd. 2450 18/10/20 By Toys Ltd. 100
31/10/20 By Trading &
P/L A/c
2350
Sales Account

Date Particulars Amount Date Particulars Amount
05/10/20 By bank a/c 1500
23/10/20 By Cash A/c 1500
By Fred a/c 400
By Bank A/c 500
31/10/20 To Trading &
P/L A/c
3900
Repairs Account
Date Particulars Amount Date Particulars Amount
12/10/20 To Cash A/c 80 31/10/20 By P/L A/c 80
Fred Account
Date Particulars Amount Date Particulars Amount
23/10/20 To Sales a/c 400
31/10/20 By balance C/f 400
01/11/20 To Balance
b/d
400
Rent Account
Date Particulars Amount Date Particulars Amount
21/10/20 By Bank a/c 500
31/10/20 To P/L A/c 500
Car Account
Date Particulars Amount Date Particulars Amount
24/10/20 To bank a/c 2500 31/10/20 By balance c/f 2500

01/11/20 To balance b/d 2500
Wages Account
Date Particulars Amount Date Particulars Amount
26/10/20 To bank a/c 820 31/10/20 By Trading &
P/L a/c
820
Drawings account
Date Particulars Amount Date Particulars Amount
31/10/20 To bank a/c 1600 31/10/20 By Capital a/c 1600
Trial Balance
Trial balance as at 31 October 2020
Particulars Debit Amount Credit Amount
Capital 14600
Cash 7120
Bank 3080
Purchases 2350
Laptop 1000
Van 3000
Creditor 2350
Sales 3900
Repairs 80
Debtor 400
Rent 500

Car 2500
Wages 820
Rent 1000
Total 21350 21350
Income statement for the year ending 31st October 2020
Particulars Amount
Sales 3900
Less:
COGS
Purchases
Wages
Closing Stock
2920
2350
820
(250) (5840)
Gross margin 980
Add: Rent received
Less:
Rent 1000
Repairs 80
500
(1080) (580)
Net Profit 400
Balance Sheet as at 31st October 2020
Particulars Amount
Assets
Current Assets
Bank 3080
Cash 7120

Debtors 400
Closing Stock 250
Fixed Assets
Van 3000
Laptop 1000
Second-hand car 2500
Total 17350
Capital & Liability
Capital 14600
Add: Net profit 400
15000
Current Liability
Creditors 2350
Total 17350
Brief letter
To
The Board of Director,
Linda Company,
From
Financial experts
Sub: Analysis financial position.
Respected Sir/ Madam
The analysis of the financial position of the business entity there are certain conclusions
has been designed. Company's owners drawn the total amount of 1600. This is a huge number
especially in case of small business houses. Drawing is about the situation when the owner of
the business bring out resources from the business venture. The impact of the drawing directly
over the liquidity situation of the organisation (Mengis, Nicolini and Gorli, 2018). Financial
resources are limited in number especially for the small and medium scale business houses. As

the small companies already contain limitation in the financial resources that further drive the
organisation to suffer from its liquidity. Apart from the natural limitation of the overall financial
resources if the management bring out resources in form of drawing this let the organisation
further suffer from the liquidity situation.
The proper strategy bin case of business operations must be that where the company
introduce more resources in the regular business functions. Management should adopt the
strategy where it tend to introduce more number of financial resources in the overall business
activity. The current situation of the company is when it could somehow due to certain situation
bring out the financial resources that could create a certain level of shortage in the bank balance
of company. At any point of time of the businesses follow drawing practice it damage the
overall capabilities and financial stability of such organisations. IN case of small business
houses usually the management are the owners of the company who have invested its capital to
start the business activity (Lemieux, 2017). The board of director in case of small companies
already take salary against the services they deliver to the business houses. Either they charge
some amount of salary or the profit share in against to deliver their services to the business
house. IT is precisely recommended than only if teh owners strictly required the financial
resources, and they are finding themselves unable to meet such need from any other source like
bank, financial institution and any other source they must not approach the bank account to the
company they are involved in as a manager. As the drawing from the business directly demolish
the overall financial capability of the business organisation this is strictly denoted for the
management to billow capital from the organisation.
Whenever the owner seek for any source of finance they must approach the external
sources of finance or the personal resources rather then debiting the bank account of business
organisation. IF they aim to have tge massive success for the business organisation they are
associated with they must focus over improving and enhancing the overall capability and
potential of the business organisation (Limo, 2017). Owner can use other sources like bank
finance, investors and private finances to meet all their funding requirements. Further the
business houses should utilise the personal bank account rather than go towards approaching the
bank account of company as a drawing source to mitigate the financial need they carry.
Company is currently facing the query where it is looking to approach customers and
companies in the South Ealing region. It can approach to other business entity like John

Sanders, St James and such entities. This is also essential for the organisation to approach new
sources that can potentially support the overall growth and development of the business entity.
IN case to achieve the growth and development in business it is essential that the organisation
constantly form strategic alliances with the stakeholders, investors and also it must overlook the
market where it can entertain business houses (Chen and et.al., 2018). Company can further
approach to small business houses associated with the toy industry to expand the reach of its
overall business outcomes. It can further use the holiday packages where it can give extra
discounts to the customers for attracting the new customers over a holiday period. People all
across the globe look for discounts that can suit based on the buying power of such customers.
This will improve the interest of potential customers in the product portfolio of the company.
All the above suggestions has been given based on the knowledge and experience.
Company has the option to also follow other suitable approaches if they find it more fruitful as
per the need and requirement of the business.
Thank You.
Part B
Ratio calculation
Net profit margin
= Net profit / sales * 100
= 400 / 3900 * 100
= 10.26%
Gross Profit Margin
= Gross Profit / Sales * 100
= 980 / 3900 * 100
= 25.12%
Current Ratio
= Current Asset / Current Liability
= 10850 / 2350

= 4.62
Acid test ratio
= Current Asset - Inventory / Current Liability
= 10850 - 250 / 2350
= 4.51
Account receivable collection period
= account receivable / Net credit sale * 365
= 400 / 3900 * 365
= 37.43 Days
Average account payable period
= Account payable * 365 / COGS
= 2350 / 5840 * 365
= 146.8 Days
The above mentioned calculations of different ratios indicate that company has generated
the net profit ratio of 10.26%. The other competitors in the industry generated the net profit
margin of 31%. The comparative analysis between the net profitability of business indicate the
huge difference in between the net profit margins of both the organisation. Difference in between
the net profit margin of company and other competitors is so huge. 31% is a huge number in
context to the net profitability percentage of the business entity whereas company is attending
the profitability at the rate of 10.36%. This indicates that sector contains huge potential of
earning net profits whereas the organisation only able to achieve net profit approximately of the
rate of 10.36%. Company should focus over more effective strategic choices that can allow the
business entity to entertain the potential level of profitability out of selling the same products
(Resmi, Pahlevi and Sayekti, 2021). The low net profit margin also indicate that company is
considering more amount of expenditure in order to operate business functions. IF the company
control its expenses than it can boost up the overall profitability margin against the business
operations entertained by the organisation.

Gross profit margin consider by the company is identified as 25.12%. IN the industry
other competitors are attending teh gross profitability at the rate of 54%. The difference between
company and other key competitors is so huge as the 25% and 54% contain a huge difference.
The critical evaluation and analysis between the gross profit margin denote that other
competitors of the company against the trading activities deliver double the gross profitability
whereas it only able to achieve the profit at the rate of 25%. 54% is a huge number that indicate
that company carry the huge opportunity to boost up the overall profitability against the trading
operations entertained by the business entity (Beck and et.al., 2017). The difference between the
average profitability of other competitors and the gross level profits company has entertained is
major. If the entity control over its direct expenditure it will get to boost up the overall gross
level profitability of business entity.
Current ratio calculated of the entity is 4.62. The calculation of current ratio denote that it
has contained a strong balance in between the current assets and current liability of the
organisation. This ratio project that current assets of company keep the current ratio of 4.62 as
compare to the current liability managed by the business entity. This ratio is much stronger even
as compare to the current ratio maintained by other competitors in market. The current ratio
maintained by other competitors is 2.87 whereas company has maintained its current ratio as
4.62. This further denote about the strong liquidity position of the business entity. Liquidity
situation is always a key requirement that business organisation required to sustain in against to
deliver the business activity (Fischer-Pauzenberger and Schwaiger, 2017). IN order to sustain the
effectiveness of the regular business operation organisation needed to manage the strong
liquidity position. AS the organisation has managed the strong management in its current nature
assets as compare to the current liability that is further strengthen the overall liquidity position of
the business entity.
Acid test ratio is identified as 4.51 whereas the industry average is 1.35. This further
denote that company has sustained a strong condition in between the actual figure and the
average of the industry. Account receivable collection period of the entity is 37.43 days whereas
other competitors of the company is sustaining its collection period as 50 days. The ratio indicate
that company is maintaining the strong balance between its collection period. IT is requiring less
number of days to collect amount from the debtors of the organisation. Payment period is 146.8
days whereas other competitors is maintaining 72 days. Company is taking double the days to

repay its creditors (De Kruijff and Weigand, 2017). This further denote that company is not able
to maintain its cash liquidity that further resist the organisation in repaying the creditors. It is
crucial that business entity should focus over increasing the overall cash liquidity sop that proper
repayment can entertain by business organisation in timely manner.
CONCLUSION
Both gross profit and net profit of the company is much less than other competitors
associated with the sector. Both net profit and gross profit is approximately half the industry
average that indicate that entity contain huge potential to improve the profitability situation of
the company. It can control its expenditure to improve profitability. Current ratio of company
project the strong balance in between the current assets and current liabilities. The current ratio
of company is well managed as compare to other competitors. Company is taking huge time just
double the other competitors in the market to repay the due amount. Company is capable to clear
its debtor even less than the time required to other competitors that also improve the liquidity
position of the organisation. IT can also control its drawing so that overall growth of company
can strengthen.

REFERENCES
Books and JOurnals
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