Recording Business Transaction

This report discusses the process of recording business transactions in the double entry system, ledger accounts, trial balance, profit & loss statement, and balance sheet. It also covers ratio calculations and compares Linda's ratios with industry standards. The report provides insights into the importance of proper accounting practices for small businesses.

Recording Business
Transaction

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
(a) Transactions are recorded in double entry system ................................................................1
b) Ledger accounts......................................................................................................................3
c) Develop a Trial Balance..........................................................................................................6
d) Profit & loss statement............................................................................................................7
e) Balance Sheet..........................................................................................................................8
f) ….Write a brief letter to Linda................................................................................................8
PART B............................................................................................................................................9
….Ratio calculations...................................................................................................................9
…..Linda's competitors ratio.......................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Transactions are first recorded in the accounting books of company then on the ledger
system. It is multi step procedure in which firstly analysis all the transaction that measure in cash
then decided what accounts will be affected. In the second step all the transactions categorised as
per the nature of transaction (Angelis and da Silva, 2019). An accounting system helps a
business to interpret business activities into usable financial records. All the financial
transactions are using to analysis its profitability and determine business activity that helps to
take investment decision. This report based on the different business transactions that recorded
by the organisations in different financial statements like journal entries, Profit & loss statement,
Balance sheet, ledger accounts. In this report cover various financial transactions that are
recorded into Trial balance and financial statements.
PART A
(a) Transactions are recorded in double entry system ..............
A journal entry is a record of business activities that occur in financial period and
measure in money. In this document covers a particular date of transaction, items will be affected
debit and credit, narration of the transaction and a unique reference number. It is known as first
step of accounting cycle. Every financial transaction affect at least two accounts, one is debited
and second is credited (Tong, Tao and Lifset, 2018).
Date Particulars
L.
F Debit Amount Credit Amount
2020
01/10/20 …...Bank A/c Dr…... 8000
…...Cash A/c Dr…... 5200
…...Van A/c Dr…... 3000
…...To Capital A/c 16200
(Being business started)
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02/10/20 …...Laptop A/c Dr…... 1000
…...To Bank A/c 1000
(Being laptop purchased)
04/10/20 …...Purchase A/c Dr…... 2450
…...To Toy Ltd 2450
(Being purchase made)
05/10/20 …...Bank A/c Dr…... 1500
…...To Sales A/c 1500
(Being sales made)
12/10/20 …...Repairs A/c Dr…... 80
…...To Cash A/c 80
(Being cash paid for repairs)
18/10/20 …...Toy Ltd A/c Dr…... 100
…...To Purchase Return A/c 100
(Being purchase return made)
21/10/20 …...Bank A/c Dr…... 500
…...To Rent A/c 500
(Being rent received)
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23/10/20 …...Cash A/c Dr…... 1500
…...Fred A/c Dr…... 400
To Sales A/c 1900
(Being sales made)
23/10/20 …...Cash A/c Dr…... 500
…...To Sales A/c 500
(Being sales made)
24/10/20 …...Car A/c Dr…... 2500
…...To Bank A/c 2500
(Being car purchased)
26/10/20 …...Wages A/c Dr…... 820
…...To Bank A/c 820
(Being wages paid)
30/10/20 …...Rent A/c…... Dr…... 1000
…...To Bank A/c…... 1000
(Being rent paid)
31/10/20 …...Drawings A/c Dr…... 1600
…...To Bank A/c 1600
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(Being drawings made)
b) Ledger accounts.............
Ledger account is a type of financial statement in which maintains data of all the
activities. It is developed under the general ledger with the particular data and amount in
different accounts such as, inventory accounts, sales, purchase, accounts receivables and many
others (Nawawi and Salin, 2018).
Bank account
Date Particular J.F Amount Date Particular J.F Amount
…...To
capital…... …...8000
…...To sales…... …...1500 …....By laptop …...1000
…...To rent
received…... …...500 …...By Car …...2500
…...By wages …...820
…...By Rent …...1000
…...By drawing …...1600
….By balance c/d …...3080
Total …...10000 Total …...10000
Rent received account
Date Particular J.F Amount Date Particular J.F Amount
…...By bank 500
500 500
Cash account
Date Particular J.F Amount Date Particular J.F Amount
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…...To capital 5200 …...By repair 80
…...To sales 1500
…...By balance
c/d... 7120
To sales 500
7200 7200
Fred a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To sales 400
…...By balance
b/d... 400
Repair a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
cash... 80
…...By balance
b/d... 80
Purchase a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To Toys
limited 2450
…...By balance
c/d 2450
Rent a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To Bank 1000
…...By
balance b/d 1000
Van a/c
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Date Particular J.F Amount Date Particular J.F Amount
…...To
capital 3000
…...By
balance b/d... 3000
Capital a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To balance
b/d... 16200 …...By bank 8000
…...By cash 5200
…...By van 3000
Sales a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To balance
b/d... 3900 …...By bank 1500
…...By cash 1500
…...By Fred 400
…...By cash 500
Laptop a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To bank 1000
…...By balance
b/d 1000
Car a/c
Date Particular J.F Amount Date Particular J.F Amount
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…...To
Bank 2500
…...By balance
b/d 2500
Wages a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 820
…...By balance
b/d 820
Drawing a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 1600
…...By balance
b/d 1600
Toys limited a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To purchase
return 100 …......By purchase 2450
…...To balance
b/d 2350
2450 2450
c) Develop a Trial Balance..........
A trial balance is a bookkeeping in which recording all the balances of ledger accounts
that categorized into debit and credit side. An entity prepares trial balance in quarterly, monthly
and yearly basis to present all the balances of different accounts (Stouthuysen, 2020). The main
aim of this work sheet that assure about the journal entries and match the balance of both side.
Accounts Debit Credit
...Bank... 3080
7

...Cash... 7120
...Van... 3000
...Laptop... 1000
...Toys limited... 2350
...Purchase... 2450
...Purchase return... 100
...Sales... 3900
...Rent received... 500
...Rent paid... 1000
...Wages... 820
...Drawing... 1600
...Capital... 16200
...Repairing
account... 80
...Fred account... 400
...Car account... 2500
22550 22550
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d) Profit & loss statement
e) Balance Sheet............
Particular Amount Total
Fixed assets
…...Car 2500
…...Van 3000
…...Laptop 1000 6500
Current Assets
…...Cash account 7120
…...Bank account 3080
…...Debtor 400
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…...Stock 250
Total assets 17350
Equity and liabilities
…...Equity
…...Capital 16200
…...Less: Drawing 1600 14600
…...Retain earnings 400
Current liabilities
…...Toys limited account 2350
Total equities and
liabilities 17350
f) ….Write a brief letter to Linda..............
Every business adopt accounting principle and concept for manage accounting activities
in proper manner. In the context of small business owner has duty to manage all the accounting
activities in proper way (Heister and Yuthas, 2020). Such as, if Linda withdraw 1600 amount for
the travelling so it will be consider as drawing and has liability to pay back to business. On the
other side Linda travel for business purpose so it will be considered travelling expenses and
present in the Income statement at the debit side.
PART B
….Ratio calculations..............
Particular Formula Linda
organization
Industry
ratio
Net profit ratio Net profit/ Net sales*100 400/3900*100 10.26% 31
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Gross profit
ratio
Gross profit/ Net revenue*
100
1800/3900*100 46.15% 54
Current ratio Current assets / Current
liabilities
10850/ 2350 4.62 2.87
Quick ratio Quick assets / Current
liabilities
10600/2350 4.51 1.35
Account
receivable
collection period
Sales/ Average account
receivables*365
3900/400*365 37.44 days 50 days
Account payable
ratio
Average payable/ Average
creditors
2450/2350*365 350 days 72 days
…..Linda's competitors ratio..............
Financial ratios provides a way to businessman to analysis the performance of business
and compare with other entity in same industry. Ratios are calculating by the business to present
relationship between 2 or more elements of financial reporting. It is a quantitative tool in which
business manager use to collect value of business like solvency, efficiency, liquidity, profitability
and others (Niemi and Hirvonen, 2019).
 Net profit margin ratio: It is a type of profitability ratio that presents the profit of
business in percentage of sales. There is comparing profit to the total amounts it brings
in. It is mainly apply by the business to analysis the efficiency and financial stability.
According to computation Linda business generates 10.26% but industry ratio is higher
31%. Therefore, it is saying that require to generate more profitability in the business.
 Gross profit ratio: It is a financial tool that use to determine the profitability of business
and presents profitability in percentage of gross profit. This ratio essential of business
that presents how administration and investors profitable core business activities. Such
as, Linda business generates 46.15% but industry generates 54 percent.
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 Current ratio: It is a kind of liquidity ratio which is applying by the organisation to
measure the ability of the business to pay off their short term debts. For the calculation
use current assets as well as current liabilities (Muneeza, and Mustapha, 2019). Both
companies near their ideal ratio but Linda has too much liquidity 4:62 as compare of
industry 2:67 which is not presenting good liquid position of business.
 Quick ratio: It presents as a business's indicant for its shorter term liquidity condition
that use to analysis the capacity of business to emission its short term liabilities. As per
the ratio calculation it is analysed that Linda has good liquidity 4:51 to pay off their debts
and obligation but in extra manner that is not good for business.
 Accounts receivable ratio: This ratio use by business to collect amount from the debtors.
Linda is giving time period is 37.44 days as compare of industry is 50 days.
 Accounts payable ratio: This ratio presents that the payable time period to their
creditors is 365 days. On the other side, industry has timing for the payable is 72 days
(Le, Amer and Holliday, 2019).
CONCLUSION
As per the above report it has been concluded that in a business entity conduct various
financial transactions in particular financial year. It is important to recording all the transactions
into different financial statements. There are recording transactions into Ledger account. Income
statement and balance sheet. At the end calculate financial ratio to present the efficiency of
business in proper manner.
REFERENCES
Books and Journals
Angelis, J. and da Silva, E. R., 2019. Blockchain adoption: A value driver perspective. Business
Horizons. 62(3). pp.307-314.
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Tong, X., Tao, D. and Lifset, R., 2018. Varieties of business models for post-consumer recycling
in China. Journal of Cleaner Production. 170. pp.665-673.
Nawawi, A. and Salin, A. S. A. P., 2018. Employee fraud and misconduct: empirical evidence
from a telecommunication company. Information & Computer Security.
Stouthuysen, K., 2020. A 2020 perspective on “The building of online trust in e-business
relationships”. Electronic Commerce Research and Applications. 40. p.100929.
Heister, S. and Yuthas, K., 2020. The blockchain and how it can influence conceptions of the
self. Technology in Society. 60. p.101218.
Niemi, J. and Hirvonen, L., 2019. Money talks: Customer-initiated price negotiation in business-
to-business sales interaction. Discourse & Communication. 13(1). pp.95-118.
Muneeza, A. and Mustapha, Z., 2019. Blockchain and its Shariah compliant structure. In Halal
Cryptocurrency Management (pp. 69-106). Palgrave Macmillan, Cham.
Le, Q., Amer, A. and Holliday, J., 2019. RAID 4SMR: RAID Array with Shingled Magnetic
Recording Disk for Mass Storage Systems. Journal of Computer Science and
Technology. 34(4). pp.854-868.
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