Recording Business Transactions: Journal Entries, Balance Sheets, and Ratio Analysis

This document provides a comprehensive guide to recording business transactions, including journal entries, balance sheets, and ratio analysis. It covers topics such as cash accounts, purchase returns, and comparative analysis with competitors. The content is relevant for students studying business and finance courses.

Recording
Business
Transaction

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Journal transactions of T- accounts:............................................................................................1
Balance the accounts and an opening balances:..........................................................................2
Trial balance:...............................................................................................................................8
Income statement for the period 31st Oct. 2020:.........................................................................8
Preparation of financial position 31st Oct. 2020:........................................................................8
PART B............................................................................................................................................9
Ratio calculation for Linda's business:........................................................................................9
Analysis of ratio analysis in comparison to its competitors:.....................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business transactions is the process which includes transactions for goods. Money,
services for various parties for the business. It includes various transactions which business uses
for its activities. It is about recording those transactions which the business runs for its activities
which helps its for higher profitability. Company's records its transactions for its decision
making which helps for better performance which helps for higher profitability. It is about
managing activities which helps managers for decision making. Businesses which are use
accounting methods for recording its activities it will helps it for managing financial system for
the business (Adamyk, 2017). For example, the company purchases building it is the transactions
for the business. This report is bases for recording business transactions which helps company's
for better decision making which helps for higher profitability for the businesses. This report
includes topics which are journal, ledger and trial balance. Apart from this it includes topics
which are cash account and ratio analysis in comparison for competitors for the businesses.
PART A
Journal transactions of T- accounts:
JOURNAL ENTRIES
S.NO Date Particulars L.F £ £
2020
1 01/10/20 Cash A/c Dr. 5200
Bank A/c Dr. 8000
Van A/c Dr. 3000
To Capital A/c 16200
(Capital invested into business)
2 02/10/20 Laptop A/c Dr. 1000
To Bank A/c 1000
( Purchased laptop by cheque)
3 04/10/20 Purchase A/c Dr. 2450
1

To Toys LTD. A/c 2450
(Goods purchased on Credit basis)
4 05/10/20 Bank A/c Dr. 1500
To Sales A/c 1500
(Goods sold by cheque)
5 12/10/20 Repair A/c Dr. 80
To Cash A/c 80
(Laptop Repair with cash)
6 18/10/20
Toys LTD. A/c
Dr. 100
To Purchase Return A/c 100
(Goods Return)
7 21/10/20 Bank A/c Dr. 500
To rent A/c 500
(Rent received)
8 23/10/20 Fred A/c Dr. 400
Cash A/c Dr. 1500
To Sales A/c 1900
(Goods sold)
9 23/10/20 Cash A/c Dr. 500
To Sales A/c 500
(Goods sold)
10 24/10/20
Car A/c
Dr. 2500
2

To Bank A/c 2500
(Car purchased
11 26/10/20 Wages A/c Dr. 820
To Bank A/c 820
(Wages paid)
12 30/10/20 Drawings A/c Dr. 1600
To Bank A/c 1600
(Amount withdraw for personal use)
13 31/10/20 Rent A/c Dr. 1000
To Bank A/c 1000
(Rent Paid)
Total 30150 30150
Balance the accounts and an opening balances:
Ledger
BANK ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
01/10/20 To capital 8000 02/10/20 By laptop 1000
05/10/20 To sales 1500 24/10/20 By car 2500
21/10/20 To capital 500 26/10/20 By Wages 820
3

30/10/20 By drawings 1600
31/10/20 By rent 100
31/12/20 By balance c/d 3080
Total 10000 Total 10000
01/11/20 To balance b/d 3080
CASH ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
01/10/20 To capital 5200 12/10/20 By Repair 80
23/10/20 To sales 1500 31/10/20 By balance c/d 7120
To sales 500
Total 7200 Total 7200
01/11/20 To balance b/d 7120
VAN ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
01/10/20 To capital 3000 31/10/20 By balance c/d 3000
Total 3000 Total 3000
4

01/11/20 To balance b/d 3000
CAPITAL ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
31/10/20 To balance c/d 16200 01/10/20 By Bank 8000
By Cash 5200
By Van 3000
Total 16200 Total 16200
01/11/20 By Balance b/d 16200
LAPTOP ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
02/10/20 To bank 1000 31/10/20 By balance c/d 1000
Total 1000 Total 1000
01/11/20 To balance b/d 1000
PURCHASE ACCOUNT
Dr.
CR.
5

Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
04/10/20 To toys ltd 2450 31/10/20 By Trading 2450
Total 2450 Total 2450
TOYS LTD ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
18/10/20
To Purchase
Return 100 04/10/20 By purchase 2450
31/10/20 To balance c/d 2350
Total 2450 Total 2450
01/11/20 By Balance b/d 2350
SALES ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
31/10/20 To Trading 3900 05/10/20 By Bank 1500
6

23/10/20 By fred 400
By Cash 1500
By Cash 500
Total 3900 Total 3900
PURCHASE RETURN ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
31/10/20 To Trading 100 18/10/20 By toys ltd. 100
Total 100 Total 100
RENT ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
31/10/20 To bank 1000 21/10/20 By Bank 500
31/10/20
By Profit and
Loss 500
Total 1000 Total 1000
FRED'S ACCOUNT
Dr.
7

CR.
Date Particulars
Jour
nal
Foli
o £ Date Particulars
Jou
rnal
Fol
io £
23/10/20 To sales 400 31/10/20 By balance c/d 400
Total 400 Total 400
400
WAGES ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
26/10/20 To sales 820 31/10/20
By Profit and
Loss 820
Total 820 Total 820
CAR ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
24/10/20 To bank 2500 31/10/20 By balance c/d 2500
Total 2500 Total 2500
8

01/11/20 To balance b/d 2500
REPAIR ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
12/10/20 To cash 80 31/10/20
By Profit and
Loss 80
Total 80 Total 80
DRAWINGS ACCOUNT
Dr.
CR.
Date Particulars
Jou
rnal
Foli
o £ Date Particulars
Jou
rna
l
Fol
io £
30/10/20 To bank 1600
By Profit and
Loss 1600
Total 1600 Toal 1600
Trial balance:
Trial balance:
Debit Trail Balance Credit
Particulars £.( amount) Particulars £( amount)
Bank 3080 Capital 16200
9

Cash 7120 Toys Ltd. 2350
Van 3000 Sales 3900
Laptop 1000 Purchase Return 100
Purchase 2450
Rent 500
Fred 400
Wages 820
Car 2500
Repair 80
Drawings 1600
Total 22550 Total 22550
Income statement for the period 31st Oct. 2020:
Dr Trading Account Cr.
Particulars £. Particulars Cr.
Purchase 2450 Sales 3900
Gross Profit 1800 Closing Stock 250
Purchase Return 100
Total 4250 Total 4250
Dr Profit and Loss Account Cr.
Particulars £. Particulars £
Rent 500 Gross Profit 1800
Wages 820
Repair 80
Net Profit 400
Total 1800 Total 1800
10

Preparation of financial position 31st Oct. 2020:
Dr Balance sheet Cr.
Liabilities £. Assets Cr.
Capital 16200 Bank 3080
(-)Drawings 1600 14600 Cash 7120
Creditor (Toys Ltd) 2350 Van 3000
Net Profit 400 Laptop 1000
Car 2500
Debtor (Fred) 400
Closing Stock 250
Total 17350 Total 17350
PART B
Ratio calculation for Linda's business:
Net profit
margin
31st Oct.2020
Net profit 400
Sales 3900
Ratio 0.1025641026
Gross profit
margin
31st Oct.2020
Gross profit 1800
Sales 3900
11

Ratio 0.4615384615
Current
Ratio
31st Oct.2020
Current assets 10850
Current Lia. 2350
Ratio 4.6170212766
Quick assets
ratio
31st Oct.2020
Quick assets 10600
Current Lia. 2350
Ratio 4.5106382979
Debtors
collection period
Avg. Debtors 400
Net credit sales 3900
Ratio
37.435897435
9
Creditors
collection period
Avg. Creditors 2350
Net credit
purchase 2350
Ratio 365
Current assets = Cash + bank + stock
= 3080 + 7120 + 400 + 250 = 10850
12

Quick Assets = Current assets – Stock
= 10850 -250 = 10600
Net Credit Purchase = Purchase – purchase return
= 2450 – 100 = 2350
Analysis of ratio analysis in comparison to its competitors:
Ratio analysis is the process for analysing business position which helps company for
decision making. It views company's position which includes liquidity, solvency, profitability
etc. Ratio analysis is allabo9ut which helps company for making profitable for the business. The
company use ratio analysis for comparing its performance & known for the performance for the
company. Ratio analysis helps business for better decision making which helps for higher
profitability for the businesses (Atah and Bessong, 2018). This analysis about Linda's company
& its competitor. It views about the company Linda's for its various ratios. Standard gross profit
shows 25%, the company has 46% that is good but in comparison to other it has less than 54%.
current ratio of the business is good than its competitors as it shows 4.44 approx that shows firm
has sufficient cash for its business activities because the standard ratio shows 2:1. current ratio is
about higher liquidity for the company which views for current liabilities & current assets for the
company. Liquid ratio about liquidity assets which includes cash & bank.
13

Net profit margin: It is the ratio that is used to compare the net income to its total revenue. It
helps company to measure the amount of profit from its total sales which company generated
from the business (Chow and Schoenbaum, 2020). This ratio is assessed by investors whether
company is generating profit and operates properly and help investor show the companies
financial position.
Gross profit margin: It is a metric that indicates the sale of the company based on the
business production. This ratio measures the cost of good sold which includes direct cost like
material and labour and exclude the indirect cost such as marketing and distributing costs. High
gross profit margin indicates higher profit on sales.
Current ratio: This ratio measures the difference between current assets and current
liability. Current ratio is also known as working capital ratio. It helps investors to look whether
company can meet its short term obligation.
Acid test ratio: This ratio helps to measure the short term assets to liabilities. It helps to
assess whether company can pay its liabilities and its financial obligation. In acid test ratio, it is
important to include cash and cash equivalents and short term investments.
Accounts receivable collection period: It is account receivable which company receive
payment owned by its customer. It is important for business to have cash on hand to meet its
liabilities.
Accounts payable payment period: It measures the how much days it will take to pay its
creditors.
CONCLUSION
From the above report it has been concluded that recording business transactions are
about managing information which are related for the activities for the businesses. These helps
company's for the better performance for the businesses which helps for higher profitability.
Company's who are use these methods it helps them for better performance for better decision
making. It helps company for its better performance which helps for higher profitability for the
company. It considers journal, ledger, trail balance, trading account, profit and loss account and
balance sheet. Firm uses ratio analysis for knowing its liquidity, solvency and profitability, also
it helps in comparison with past years. These business records helps for company for views its
reports for the shareholders which makes it success for its business. These records helps them for
investing for the company which helps for the higher profitability for the businesses.
14

REFERENCES
Books and journals:
Adamyk. O. 2017. Audit of Accounting Staff in Computer-Based Environment.
Atah, C. A. and Bessong, B. E. 2018. IMPACT OF RECORD KEEPING FOR
SUSTAINABILITY OFSMALL SCALE BUSINESS OPERATORS FOR NATIONAL
ECONOMY DEVELOPMENTIN NIGERIA. Nigerian Journal of Business Education
(NIGJBED). 5(1). pp. 102-114.
Chow. D. C. and Schoenbaum, T. J., 2020. International business transactions: problems, cases,
and materials. Wolters Kluwer Law & Business.
Corcoran, D. 2016. The Case under the GDPR for Video and Audio Recording in Commercial
Spaces and Interactions: An Example of Fitting Legacy Systems and Practices into a
Forward-Looking Compliance Regime. Int'l. In-House Counsel J. 10. p.1.
Harahap, H. H. and Zulkarnain, N. J. R. 2020. THE ONLINE BUSINESS TRANSACTIONS IN
PERSPECTIVE POSITIVE LAW IN INDONESIA. PalArch's Journal of Archaeology
of Egypt/Egyptology, 17(7). pp.15102-15111.
Li, J. 2020. Globalization of Anglo-American common law vs. strong nation state: Evidence
from the use of legal counsel in cross-border business transactions involving China. The
International Lawyer. 53(3). pp 383-415.
OVSIUK. N. 2020. Valuation and Recording the Value of Innovation Objects in the Accounting
System. Scientific Bulletin of the National Academy of Statistics, Accounting and Audit.
(3). pp.47-54.
Tillman. S. B. 2017. Business Transactions and President Trump's Emoluments Problem.
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