Recording Business Transaction

This document provides a step-by-step guide on how to record business transactions using T-accounts. It includes examples and explanations for each transaction. The document also covers how to balance accounts, extract a trial balance, prepare an income statement, and create a statement of financial position. Additionally, it includes a section on analyzing financial performance using various ratios.

Recording Business Transaction

Contents
MAIN BODY..............................................................................................................................................3
Part A......................................................................................................................................................3
PART B...................................................................................................................................................8

MAIN BODY
Part A
a) Write double entry record the transactions in T-accounts
Date Particulars DR CR
1-Sep Computer a/c DR 2000
Bank a/c DR 20000
Cash a/c DR 4200
To capital 26200
2-Sep Purchase a/c DR 800
To Dawson a/c 800
3-Sep New Computer a/c DR 2000
To bank 2000
5-Sep Bank a/c DR 400
To sales a/c 400
6-Sep Purchase a/c DR 400
To cash a/c 400
10-Sep Rent a/c DR 600
To bank a/c 600
12-Sep Repairing a/c DR 100
To cash a/c 100
18-Sep Dawson a/c DR 100
To purchase return a/c 100

21-Sep bank a/c DR 300
To rent a/c 300
23-Sep Joseph a/c DR 400
To sales 400
23-Sep cash a/c DR 1500
To sales 1500
24-Sep Car a/c DR 1000
To bank 1000
30-Sep Wages a/c DR 700
To cash a/c 700
30-Sep Drawing a/c DR 450
To cash a/c 450
b) Balance the accounts and bring down an opening balance
Computer a/c
Dat
e particulars
Amoun
t
Dat
e particulars
Amoun
t
1-
Sep To capital a/c 2000
1-
Sep By balance c/d 2000
2000 2000
Bank a/c
To capital a/c 20000 By new computer a/c 2000
To sales a/c 400 By rent a/c 600

To rent a/c 300 By Car a/c 1000
By balance c/d 17100
20700 20700
cash a/c
To capital a/c 4200 By purchase 400
To sales 1500 By repairing 100
By wages 700
By drawings 450
By balance c/d 4050
5700 5700
capital a/c
To balance c/d 26200 By computer a/c 2000
By bank a/c 20000
By cash a/c 4200
26200 26200
Purchase a/c
To balance c/d 1200 To Dawson a/c 800
To cash a/c 400
1200 1200
Dawson a/c
To purchase return a/c 100 By purchase a/c 800
To balance c/d 700
800 800
New computer a/c
To bank 2000 By balance c/d 2000

2000 2000
sales a/c
To balance c/d 2300 By bank a/c 400
By Joseph a/c 400
By cash a/c 1500
2300 2300
Rent a/c
To bank a/c 600 By bank a/c 300
By balance c/d 300
600 600
Repairing a/c
To balance c/d 100 To cash a/c 100
100 100
Purchase return a/c
To balance c/d 100 By Dawson a/c 100
100 100
Joseph a/c
To sales 400 By balance c/d 400
400 400
Car a/c
To bank 1000 By balance c/d 1000
1000 1000

Wages a/c
To cash a/c 700 By balance c/d 700
700 700
Drawings a/c
To cash a/c 450 By balance c/d 450
450 450
c) Extract a Trial balance as at 30th September 2020
Particulars DR CR
Computer a/c 2000
Bank a/c 17100
Cash a/c 4050
Capital a/c 26200
Purchase a/c 1200
Dawson a/c 700
New computer a/c 2000
sales a/c 2300
Rent a/c 300
Repairing a/c 100
Purchase return a/c 100
Joseph a/c 400
car a/c 1000
Wages a/c 700
Drawings a/c 450
Suspense a/c 2600
30600 30600
d) Prepare an Income Statement for the period ended 30th September 2019
Income statement

Sales 2300
Less: cost of sales 850
Opening stock 0
Purchase (Less: 1200-100 1100
Closing stock 250
Gross profit 1450
Less: rent 300
Less: repairing cost 100
Less: wages 100
Net profit 950
e) Prepare a Statement of Financial Position as at 30th September 2019
Liabilities
Amoun
t Assets
Amoun
t
Equity: Fixed assets: 5000
Capital: 26200-450 25750 Computer 4000
Creditors 6350 Car 1000
Current assets:
Bank 17100
cash 4050
Debtors 700
stock 250
32100 32100
PART B
Net profit margin: Net profit/sales*100
Net profit. 950
sales 2300

Net profit margin. 41.30
Gross profit margin: Gross profit/sales*100
Gross profit. 1450
sales 2300
Gross profit margin. 63.04
Current ratio: Current assets/current liabilities
Current assets 22100
current liabilities 6350
current ratio. 3.48
Acid test ratio: Quick assets/current liabilities
Quick assets 21850
current liabilities 6350
Acid test ratio
3.44094
5
Accounts receivable collection period: 365/AR turnover
ratio
Sales 2300
Accounts receivables 700
AR turnover ratio
3.28571
4
Accounts receivable collection period 111.087
Accounts payable payment period: 365/AP turnover ratio
Purchase 1100
accounts payable. 6350
AP turnover ratio
5.77272
7

Accounts payable payment period
63.2283
5
Analyze his performance with reference to each of the ratios calculated in comparison to those of
her competitor.
Net profit margin- In accordance of above done ratio analysis this can be inferred that net margin
is of 41.30% while industry’s ratio analysis is of 28%. This shows that there is significant
difference between both values. As well as company’s performance is much better in
comparison.
Gross profit margin- as per above computed ratio of company this can be stated that company’s
gross margin is of 63.04% which sector’s ratio is of 65%. It shows that company’s performance
is better in order to generate gross profit during the time period. Though there is not so huge
difference in terms of gross margin of both.
Current ratio: The current ratio of company is of 3.48:1 times while sector’s ratio is of 2.10: 1
times. It indicates that company is able to produce more amount of current assets in order to deal
with short term expenses during similar period of time.
Acid test ratio: The acid test ratio of industry is in ideal form which is of 1.5:1 times while
company’s ratio is of 3.44 times. This shows that company is not able to manage their ratio in an
effective manner as they have more number of quick assets to make payment of short term debts
during mentioned amount of time.
Accounts receivable collection period: Accounts receivable collection period of industry is of 47
days while company is taking time of 112 days. This shows that there is significant difference
between both companies. As well as, it indicates that company is taking more amount of time
period in order to gather debt amount.
Accounts payable payment period- Accounts receivable collection period of industry is of 65
days while company is taking time of 63 days. This shows that there is significant difference
between both companies. As well as, it indicates that company is taking less amount of time
period in order to pay debt amount.