Recording Business Transaction

This document provides information about recording business transactions, including examples of transactions, ledger accounts, trial balance, income statement, financial position, and analysis of Linda's business performance. It also includes a letter to Linda regarding drawings and various financial ratios for Linda's business. The document is suitable for students studying accounting or business-related courses.

RECORDING BUSINESS
TRANSACTION

Table of Contents
MAIN BODY...................................................................................................................................3
Part A...............................................................................................................................................3
a) Business transaction in Linda buying and selling toys in Oxford...........................................3
b)Ledger Accounts of Linda business.........................................................................................4
c) Trial balance as on 31st oct 2020............................................................................................7
d)Income statement for year ended 31st Oct 2020......................................................................8
e) Financial Position as on 31st Oct 2020...................................................................................8
f)Letter to Linda regarding drawings..........................................................................................8
Part B...............................................................................................................................................9
1. Ratio's for Linda's Business....................................................................................................9
2. Analysis of Lind's business performance as compared to competitors.................................10
REFERENCES..............................................................................................................................12

MAIN BODY
Part A
a) Business transaction in Linda buying and selling toys in Oxford
Date Particulars L.F Debit Credit
01/10/20 Bank A/C 8000
Cash A/C 5200
Van A/C 3000
To Capital A/C 16200
(Being Capital introduced)
02/10/20 Laptop A/C 1000
To Bank A/C 1000
(Being Laptop bought )
04/10/20 Purchase A/C 2450
To Toy Ltd. A/C 2450
(Being toys are purchased on credit)
05/10/20 Bank A/C 1500
To sales A/C 1500
(being goods sold)
12/10/20 Repairs A/C 80
To Cash A/C 80
(Being laptop is repaired )
18/10/20 Toys Ltd. A/C 100
To purchase A/C 100
(Being goods returned to toys ltd)

21/10/20 Bank A/C 500
To Rent A/C 500
(Being rent received)
23/10/20 Cash A/C 1500
Fred A/C 400
To sales A/C 1900
(Being Goods sold on cash and cred
it partly )
23/10/20 Cash A/C 500
To sales A/C 500
(Being goods sold to David)
24/10/20 Second hand car A/C 2500
To Bank A/C 2500
(Being car purchased by issuing
cheque)
26/10/20 wages A/C 820
To Bank A/C 820
(Being wages paid to part time
workers )
30/10/20 Rent A/C 1000
To Bank A/C 1000
(Being rent paid)
31/10/20 Drawings A/C 1600
To Bank A/C 1600

(being business funds used by owner
for paying expenses of holiday)
Total 30150 30150
b)Ledger Accounts of Linda business
Dr. Capital Account Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To balance C/d 16200 01/10/20 By Bank A/C 8000
01/10/20 By Cash A/C 5200
01/10/20 By Van A/C 3000
16200 16200
Dr. Laptop A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
02/10/20 To Bank A/C 1000 31/10/20 To balance C/d 1000
1000 1000
Dr. Bank A/C Cr.
Date Particulars J.F Amount Date Particulars J.F 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 Second hand
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
31/10/20 by balance C/d 3080
10000 10000
Dr. Cash A/C Cr.
Date Particulars J.F Amount Date Particulars J.F 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 31/10/20 by balance C/d 7020
23/10/20 To sales A/C 500
7200 7200
Dr. Van A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
01/10/20 To Capital A/C 3000 31/10/20 by balance C/d 3000
3000 3000
Dr. Purchase A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
04/10/20 To Toy Ltd. A/C 2450 31/10/20 by balance C/d 2450
2450 2450
Dr. Drawings A/C Cr.
Date
Particular
s J.F Amount Date
Particular
s J.F Amount

31/10/20
To balance
C/d 100 18/10/20
Toy Ltd.
A/C 100
100 100
Dr. Toy Ltd. A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
18/10/20 To Cash A/C 100 04/10/20 Purchase A/C 2450
31/10/20 To balance C/d 2350
2450 2450
Dr. Sales A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To balance C/d 3900 05/10/20 By Bank A/C 1500
23/10/20 By Cash A/C 1500
23/10/20 By Fred A/C 400
23/10/20 By Cash A/C 500
3900 3900
Dr. Repairs A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
12/10/20 To Cash A/C 80 31/10/20 by balance C/d 80
80 80
Dr. Rent A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount

30/10/20 To Bank A/C 1000 21/10/20 By Bank A/C 500
31/10/20 by balance C/d 500
1000 1000
Dr. Fred A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
23/10/20 To sales A/C 400 31/10/20 by balance C/d 400
400 400
Dr. Second hand car A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
24/10/20 To Bank A/C 2500 31/10/20 by balance C/d 2500
2500 2500
Dr. Wage A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
26/10/20 To Bank A/C 820 31/10/20 by balance C/d 820
820 820
Dr. Drawings A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To Bank A/C 1600 31/10/20 By balance C/d 1600

1600 1600
c) Trial balance as on 31st oct 2020
Particulars Debit Credit
Capital 16200
laptop 1000
bank 3080
Cash 7120
van 3000
purchase 2450
Toys Ltd account 2350
sales 3900
Repairs 80
rent 500
Fred Account 400
Second hand car account 2500
wage 820
drawings 1600
Purchase return 100
Total 22550 22550
d)Income statement for year ended 31st Oct 2020
Income statement
Particulars Amount Amount
sales 3900
Opening stock 0
Purchase 2450
Purchase return 100
Closing stock 250 2100

Gross Profit 1800
Repairs 80
rent 500
wage 820 1400
Net Profit 400
e) Financial Position as on 31st Oct 2020
Liabilities Amount Assets Amount
Capital 16200 laptop 1000
(Drawings) -1600 bank 3080
Net Profit 400 Cash 7120
van 3000
creditor 2350 Fred Account 400
Second hand car account 2500
Closing Account 250
17350 17350
f)Letter to Linda regarding drawings
To Linda,
Drawings are those expenses that owner does from business fund. It reduces fund of
business as it is used by proprietors for their personal agendas. Linda has a small business with
low amount of capital (Easton and et.al., 2018). Linda withdrew some amount of money for
personal tour expenses. Such expenses not only make business weaker but also it makes
unstable. She was asking the business to convert it into business expenses, which is completely
unethical. These transactions reduce working capital of company that forces business to brought

money from external resources. These external resources charge interest from firm for using
these resources for the motive of earning profit.
It is expected from the owner of business to pay its drawings on time with interest.
Proprietor (Craja, Kim and Lessmann, 2020). It is ethical principle of accounting to maintain fair
transaction. To fulfil this principle paying drawings to organization becomes necessary for owner
of firm. It expected from you to pay this obligation for safeguard of business.
Part B
1. Ratio's for Linda's Business
Net profit ratio
Particulars Formula Ratio
Net Profit 400
sales 3900
Net profit Ratio Net Profit /sales *100 10.25
Gross profit ratio
Particulars Formula Ratio
gross Profit 1800
sales 3900
Gross profit margin Gross Profit /sales *100 46.15
Current Ratio
Particulars Formula Ratio
Current asset 10850
current liability 2350
Current ratio Current asset /current liability 4.6
Acid Test Ratio
Particulars Formula Ratio

Quick asset 10600
current liability 2350
Acid Test ratio Quick asset /current liability 4.5
Account Receivable collection period
Particulars Formula Ratio
Account receivable 400
net credit sales 400
Account receivable collection period Account receivable /COGS*365 365
Account payable payment period
Particulars Formula Ratio
Account payable 2450
COGS 2100
Account payable payment period Account payable /COGS*365 425.83
2. Analysis of Lind's business performance as compared to competitors
Net profit ratio of Linda's company for the year 2020 is 10.25%. An ideal net profit ratio
of any company should be between 10-20%. So from theoretical perspective ratio of Linda's
business is good. From competitors point of view net profit ratio of Linda's firm is too less as
ratio of competitors is 31% (Robinson, 2020) . so difference between company and others firm
ratio is approx 21% which is indicating low profitability of organisation in industry.
An ideal gross profit Ratio any industry is 15-20%. while ratio of mentioned company is
46.75% which is outstanding when it is compared to ideal ratio. Ratio of competitors is 54% . in
industry Linda is too back in case of earning gross profit. Ratio of profit is 10% approximately
less when it is compared to its industry's participant. This shows that company should take
important actions to improve its profitability to maintain interest of stakeholders.
Current ratio of company is 4.6 times. while a perfect ratio is 1.2-2 , which means that
company have assets two times more than its liabilities. In case of Linda's firm, assets are four
times better than its liabilities that increases investors interest to invest their fund. So that it can
easily pay-off its current obligations (Bergner and et.al., 2020). Current ratio of competitors is

2.87 times which is less than Linda's business. It can be interpreted that company is properly
managing its assets and liabilities.
Quick test ratio of any firm should be 1 so that company can be in position to avoid its
short term obligation easily. Acid test ratio of the Company is 4.5 times (Amadi and Ejiogu,
2021). Higher the ratio more favourable the situation for company as it has more liquid assets to
meet out its non long term liabilities. It is more than competitors in industry as their ratio is 1.35
times. Having good capacity to pay its liability without struggle is good representative of
company.
Account receivable collection period is the duration that company allow its debtor for
paying amount. There is no perfect days specified. It differs from company to company. It is
always suggested to keep collection period short to avoid bad debts. The competitors allow 50
days to their debtors which is may be suitable for their business processing. The Linda company
allows 365 days. This requires changes as no company should allow one year for account
receivable. In such case occurring of bad debt can rise so to neglect such unwanted
circumstances collection period should be less.
Account payable period of Linda company is 425.83 which is good for organisation it
does not need to worry to collect money soon to pay its debts (Samuelson, 2021). Competitors
ratio of Account payable is 72 days which increases their creditworthiness. So being able to pay
debts in shorter time enhances company's ability to pay its obligations easily.

REFERENCES
Books and Journals
Amadi, C. and Ejiogu, A., 2021. Introduction to Financial Accounting. Financial and
Managerial Aspects in Human Resource Management: A Practical Guide, Emerald
Publishing Limited. pp.3-9.
Bergner, R. A. and et.al., 2020. Method and system for recording point to point transaction
processing. U.S. Patent Application 16/842,886.
Craja, P., Kim, A. and Lessmann, S., 2020. Deep learning for detecting financial statement
fraud. Decision Support Systems. 139. p.113421.
Easton, P. D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Robinson, T. R., 2020. International financial statement analysis. John Wiley & Sons.
Samuelson, J., 2021. The Six New Rules of Business: Creating Real Value in a Changing World.
Berrett-Koehler Publishers.