Recording Business Transaction: Journal, Ledgers, Trial Balance, Income Statement, Balance Sheet

This document provides a comprehensive guide on recording business transactions, including journal entries, ledgers, trial balance, income statement, and balance sheet. It also explains key financial ratios such as net profit margin, gross profit margin, current ratio, acid test ratio, and accounts receivable collection period.

RECORDING BUSINESS
TRANSACTION

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART A...........................................................................................................................................3
A. JOURNAL..............................................................................................................................3
B. LEDGERS...............................................................................................................................5
C. TRIAL BALANCE.................................................................................................................8
D.INCOME STATEMENT.........................................................................................................9
E. BALANCE SHEET.................................................................................................................9
F. BRIEF ON LINDA'S DRAWINGS......................................................................................10
PART B..........................................................................................................................................10
INTERPRETATION..................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1

INTRODUCTION
The Recording of business transaction records all the transactions in the books of
accounts of any organization in many ways. These transactions are recorded in Journal entries,
Profit and Loss Statement, income statement and balance sheet of the firms (Rechtman, 2017). In
this report Linda started new business of selling toys in Oxford university and record the
transactions' for the first month. It also analysis the ratios of the company and interpretation
which shows the company efficiency and working of business. Whereas, Ratios are also
compared with the competitor market and shows Linda's business position in the market.
MAIN BODY.
PART A
A. JOURNAL
Dt. Transactions Dr. Cr.
01/10/20
Bank A/C................. Dr
To capital A/C..... Cr. £8,000 £8,000
Cash A/C................. Dr
To capital A/C...... Cr £5,200 £5,200
Van A/C................. Dr
To capital account...... Cr £3,000 £3,000
02/10/20
Laptop A/C................ Dr
To Bank A/C..... Cr
(Buying of laptop for Business use) £1,000 £1,000
04/10/20
Purchase A/C................ Dr
To Toys Ltd. A/C...... Cr.
(Credit Purchase of Goods) £2,450 £2,450
05/10/20
Bank A/C................ Dr
To Sales A/C...... Cr.
(cash sales of goods) £1,500 £1,500
12/10/20
Repairs A/C................ Dr
To Cash A/C...... Cr.
(Repaired laptop and paid in cash) £80 £80
18/10/20 Toys Ltd. A/C................ Dr £100 £100

To Purchase A/C...... Cr.
(Return of goods to Toys Ltd.)
21/10/20
Bank A/C ................ Dr
To Rent received A/C...... Cr.
(Rent Received) £500 £500
23/10/20
Cash A/C................ Dr
To Sales A/C...... Cr.
(Goods sold on cash) £1,500 £1,500
Fred A/C................ Dr
To Sales A/C...... Cr.
(Goods sold on Credit) £400 £400
23/10/20
Cash A/C ................ Dr
To Sales A/C...... Cr.
(Cash sales) £500 £500
24/10/20
Old car A/C................ Dr
To Bank A...... Cr.
(Second hand car purchase in auction) £2,500 £2,500
26/10/20
Wages A/C................ Dr
To Bank A/C...... Cr.
(Wages paid to Shopkeepers) £820 £820
30/10/20
Rent A/C................ Dr
To Bank A/C...... Cr.
(Business Rent paid) £1,000 £1,000
31/10/20
Drawings A/C................ Dr. *
To Bank A/C...... Cr.
(Drawing from bank) £1,600 £1,600
Total £30,150 £30,150
*Note:

Drawings: It is the amount which is drawn by the business owner and spend it in a particular
activity which is either personal or business purpose. The drawing accounts is used primarily for
those business which are either partnership or sole proprietors. The two types of drawings are
personal drawing or business drawings. Personal drawings' means which are used for the
personal drawings and which are deducted from the owners capitals. These transactions are not
related with business activities. Whereas, Business drawings are the funds which owner uses for
those activities which are related to business and treated as business expenses. They are related
to the business activities and spend for the business purpose only.
Linda had used business money as her personal expense for the travel to Florida, for
entertainment and not for her business used. However, this transaction must be shown in the
books as drawings in accounts and deducted from the capital of the business. If transactions are
related to business and Linda is travel for business purpose, then it will treat as the expense for
the business.
B. LEDGERS
Capital A/C.
Dt. Particulars Transaction
Amount
Dt. Particulars Transaction
Amount
31/10/20 To Drawings £1,600 01/10/20 By Bank £8,000
To Balance
Total C/f
£14600 By Cash £5,200
By Van £3,000
01/11/20 By Balance
Total B/d
£14,600
CASH A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital £5,200 12/10/20 By Repair £80
23/10/20 To Sales £1,500 31/10/20 By Balance £7120

Total C/f
To Sales £500
01/11/20 To Balance
Total B/d
£7,120
Bank A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital
A/C
£8,000 02/10/20 By Laptop £1,000
05/10/20 To Sales £1,500 24/10/20 By old car £2,500
21/10/20 To Rent
Receive
£500 26/10/20 By wages £820
01/11/20 To Balance
Total b/d
£3,080 30/10/20 By Rent Paid £1,000
31/10/20 By Drawings £1,600
By Balance
Total C/f
£3,080
LAPTOP A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
02/10/20 To Bank £1,000 31/10/20 By Balance c/f £1,000
01/11/20 To Balance
B/d
£1,000
TOYS LTD A/C.

Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
18/10/20 To Purchase £100 04/10/20 By Purchase £2,450
31/10/20 To Balance c/f £2,50 01/11/20 By Balance b/d £2,350
REPAIR A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
12/10/20 To Cash £80 31/10/20 By P/L £80
WAGE A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
26/10/20 To bank £820 31/10/20 By P&L £820
VAN A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital £3000 31/10/20 By Balance
C/f
£3000
01/11/20 To Balance
B/d
£3000
SALES A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
31/10/20 To P&L £3900 05/10/20 By Bank £1500

23/10/20 By Cash £1500
By Fred £400
By Bank £500
PURCHASE A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
04/10/20 To Toys Ltd. £2,450 18/10/20 By Toys Ltd. £100
31/10/20 By P&L £2,350
RENT RECIEVE A/C
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
31/10/20 To P&L £500 21/10/20 By Bank £500
RENT A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
30/10/20 To bank £1,000 31/10/20 By P&L £1,000
FRED A/C
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
23/10/20 To Sales £400 31/10/20 By balance C/f £400
01/11/20 To Balance
b/d
£400
DRAWING A/C.

Date Particulars Amount Date Particulars Amount
31/10/20 To bank £1,600 31/10/20 By Capital £1,600
SECOND HAND CAR A/C.
Date Particulars Amount Date Particulars Amount
24/10/20 To bank a/c £2,500 31/10/20 By balance c/f £2,500
01/11/20 To balance b/d £2,500
C. TRIAL BALANCE.
Trial balance as at 31 October 2020
Details Debit Credit
Capital £14,600
Cash £7,120
Bank £3,080
Laptop £1,000
Creditors (Toys Ltd.) £2,350
Repair £80
Wages £820
Van £3,000
Sales £3,900
Purchase £2,350
Rent receive £500
Rent Paid £1,000
Debtors £400
Second-hand car £2,500

Total Amount £21,350 £2,1350
D.INCOME STATEMENT
Income statement for the year ending 31'St October 2020.
Details Transactional Amount
Sales £3900
Less: Cost of good sold
Purchase £2350
Wages £820
Cl. Stock (£250)
(£2920)
Gross margin £980
Add: Rent received £500
Less:
Rent £1000
Repairs £80 (£1080)
Net Profit £400
E. BALANCE SHEET
Balance sheets as on 31st October 2020
Details Amount
ASSETS
Current Assets
Cash £7120
Bank £3080
Debtors £400
Closing Stock £250

Fixed Assets
Laptop £1000
Second-hand car £2500
Van £3000
TOTAL £17350
CAPITAL & LIABILITY
Capital £14600
Add: Net profit
£400
£15000
Current Liability
Creditors £2350
TOTAL £17350
F. BRIEF ON LINDA'S DRAWINGS.
The trip to Florida is treated as the personal drawings only, as the trip is related to the
personal nature and no business activities are carried by her. This will treated as the personal
drawings and is liable to deduct the money from the capital of business (Miller, and et.al., 2019).
If, the activities are related to the business purpose then it is treated as Withdrawal and
forwarded to P&L account.
PART B
1. Net Profit Margin = Revenue/ Sales×100
= 400/3900×100
=10.25%
2. Gross Profit Margin= Gross Profit/ Net Sales×100
= 980/3900×100

=25.1%
3. Current ratio=Total Liability/ Total asset
=2350/17350
=0.13
4. Acid Test Ratio= Current Asset- inventory/current liabilities
=10600-250/2350
=4.4
5. Account receivable collection Period= average account receivable / net credit sales×365
Average account receivable = Opening Debtor + closing Debtor /2
= 0+400/2
=£200
Account receivable collection Period= average account receivable / net credit sales×365
= 200/400×365
=182.5 days
6. Accounts payable payment period=Average account payable/Net Credit purchase×365
= Average account payable= Opening Credit+ closing Credit/2
=0+2350/2
=£1175
Accounts payable payment period=Average account payable/Net Credit purchase×365
=1175/2350/*365
=182.5
INTERPRETATION
1. Net Profit Margin: It is total percentage of profit margin from the total sales which is
actual profit of the company. Net profit is calculated after the deduction of Cost of good
sold, taxes and operating cost from the company(Bergner, and et, al., 2020). Linda shows

the 10.25% for the first month which is very low margin when it compares to average
Competitor market it was 31%. The competitor market shows high margin in the toy
industry which was unable to meet by Linda. The Margin was quite low in the starting
which can be recovered by her with time when sales increases in the future. Linda should
change their suppliers to increase the net margin from the goods and to compete with
others.
2. Gross Profit Margin: It is the margin which calculate profitability and shows of
percentage of revenue exceed from cost of good sold. It shows how company generate
revenue, cost of production involved (Bhuiya, and et. al., 2019). The Gross profit margin
of Linda shows 25.1% of total margin which is quite low when it compares to the average
competitor market which is 54% of margin. It is possible due to new starting of business
and can be increase with time and sales of company. Linda should increase their gross
profit margin to sustain in t6he competitor market.
3. Current Ratio: These ratios shows the Liquidity ratios and measure the company ability
to pay the short term liabilities which are due for less than 1 year. It shows investor to
incest in the particular business or not and help business how to maximize the current
ratio to fulfil debts and other liabilities (Hanifatunnisa, and Rahardjo, 2017). Linda
company shows the current ratio of 0.13 which is very poor as the ideal ratio was
between 2:1 for any company. The average current ratio of competitor are 2.87 times
which was very high when it compares to Linda performance. The performance was very
low and need to improve efficiently to sustain in the market and to raise funds from
investors.
4. Acid Test ratio: It is used by the firms to know how instantly the company can convert
their assets into liquidity for short term assets to meet their short term liability. This ratio
is more suitable from current asset as it is difficult to liquidate the inventory (Kumar, and
et.al., 2020). The acid test ratio of Linda is 4.4 which was too high to meet their short
term liability and unnecessary hold by Linda. The average competitor acid test ratio was
only1.35 times are maintained in the market. This shows Linda had very high amount of
liquidity and can be converted easily.
5. Account receivables collection period: It is the time period to collect the debtor amount
from the market and received payment. Linda's time period to collect the amount from

debtor is 182 days which was very high time period in the market and can suffer in the
market. Whereas, when it compares with competitor average collection period was only
520 days from the market.
6. Accounts payable payment period: It is the period to make payment in the market for
the goods and service taken. Linda's payment period was 182 days which was very high
and affect the Linda's goodwill in the market. And, when it compares with the competitor
average time period was 72 days to make payment to suppliers (LI, and SU-CC Corp Ltd,
2019). This also affect the supple chain of Linda's business.
CONCLUSION
The report concludes that the performance of the company shows very poor transaction
for the first month if starting business. The transaction shows the performance of the Linda
business and which is compare with the competitor. However, company shows very poor
performance which are shown through the calculation of ratios when it compares to the
competitor market. Linda balance sheet and income statement is very poor and shows the net
profit of £400 in their first month. Whereas, Linda had also drawing the money for their personal
use which is for personal expense and are deducted from the owners' equity from the company.
She had to improve her performance overall otherwise her business is not gonna sustain for long
in the market. She need to strategies her supply chain and selling price to target customer to earn
good profit and compete with other suppliers.

REFERENCES
Books and journals
Bergner, R.A., and et, al., 2020. Method and system for recording point to point transaction
processing. U.S. Patent 10,659,227.
Bhuiya, S., and et. al., 2019. Transaction processing based on comparing actions recorded on
multiple devices. U.S. Patent 10,387,860.
Hanifatunnisa, R. and Rahardjo, B., 2017, October. Blockchain based e-voting recording system
design. In 2017 11th International Conference on Telecommunication Systems Services
and Applications (TSSA) (pp. 1-6). IEEE.
Kumar, S., and et.al., 2020. System and method for recording device lifecycle transactions as
versioned blocks in a blockchain network using a transaction connector and broker
service. U.S. Patent 10,657,261.
LI, S.Y.A., SU-CC Corp Ltd, 2019. System and method for life cycle operation of supply chain
business transaction. U.S. Patent Application 16/199,042.
Miller, W.A., and et.al., 2019. Systems and methods for use of distributed ledger technology for
recording and utilizing credit account transaction information. U.S. Patent 10,489,780.
Rechtman, Y., 2017. Blockchain: The making of a simple, secure recording concept. The CPA
Journal. 87(6). pp.15-17.
Online
[Online]. Available through: <>
1

2