Recording Business Transactions: Journal Entries, Ledgers, Trial Balance, Income Statement and Balance Sheet

This report includes the preparation of financial statements which start from passing journal entries, preparing ledger accounts, trial balance, profitability statement and balance sheet of Anne York who is a businesswoman and running a business of furniture. Calculation of ratios are also included in this report. Interpretation of ratios is done considering competitor and COVID-19 impact on the entity.

Recording Business
Transaction

Table of Contents
INTRODUCTION...........................................................................................................................1
Assessment II...................................................................................................................................1
Part A...............................................................................................................................................1
(a) Journal books including the record of business transactions. ...............................................1
(b) Ledgers Accounts of Anne York Business............................................................................3
(c) Preparation of Trial Balance as on 31st October 2021..........................................................7
(d) Income Statement for the period ended 31st October 2021..................................................7
(e) Statement of Financial Position.............................................................................................8
(f) Letter addressed to Anne........................................................................................................9
PART B............................................................................................................................................9
(a) Calculation of Accounting Ratios of Anne Business: -.........................................................9
(b) Interpretation of ratios calculated above considering competitor and covid 19 impact on
the entity......................................................................................................................................9
CONCLUSION..............................................................................................................................10
References:.....................................................................................................................................11

INTRODUCTION
Business transactions are defined as the activities of flow of money or products or
services in a business organisation which take place among two or more people. These
transactions are necessary for businesses to record them in the books and there are several steps
in the process of recording transactions which include journal entry, preparation of ledgers and
completion of books of account (Karamchandani and Srivastava 2020). This report include the
preparation of financial statements which start from passing journal entries, preparing ledger
accounts, trial balance, profitability statement and balance sheet of Anne york who is a
businesswoman and running a business of furniture. Along with this, it also include a letter
addressing to Anne which clarify her related to the drawings which had drawn from the funds of
business unit along with providing answer to her query which she has raised for holidays taken
by her. Calculation of ratios are also included in this report.
Assessment II
Part A
(a) Journal books including the record of business transactions.
JOURNAL ENTRIES IN BOOKS
Date Particulars Debit Credit
01/10/21 Bank
Cash
Flat
Car
Capital
(Business started with bank, cash, flat and car)
10000
4800
45000
12000
71800
02/10/21 Purchases
Home Ltd
(Goods purchased on credit from Home Ltd.)
5400
5400
04/10/21 Computer
Printer
800
200
1

Bank
(Computer and printer purchased and payment made
through bank)
1000
05/10/21 Bank
Sales
(Goods amounting to 2800 sold for cash)
2800
2800
12/10/21 Repair Expense
Cash
(Repair expenses incurred and payment made in cash)
110
110
18/10/21 Home Ltd.
Purchases
(Furniture of 250 returned to home Ltd as purchase
return.)
250
250
21/10/21 Bank
Rental Income
(Rent received by the enterprise)
800
800
23/10/21 Rayan
Cash
Sales
(Goods sole to Rayan for 2100, out of which 1800 have
been received by cash and remaining on credit)
300
1800
2100
23/10/21 Cash
Sales
(Goods sold to David and cash received)
700 700
24/10/21 Laptop
Bank
( Laptop has been purchase for office purpose)
1700
1700
26/10/21 Wages 820
2

Bank
(Payment made to shopkeeper in cash amounting to
820 as wages)
820
30/10/21 Rent Expenses
Bank
(An office premises being rented by entity for which
rent has been paid for cash)
850
850
31/10/21 Drawings
Bank
(Amount withdraw from the business for personal use
by the proprietor)
1200
1200
31/10/21 Cash
Rayan
(Rayan a debtor of organisation of the entity paid their
debt)
150
150
(b) Ledgers Accounts of Anne York Business
Bank Account
Date Particulars LF Amount Date Particulars LF Amount
01/10/21 Capital 10000 04/10/21 Computer 800
21/10/21 Rent 800 04/10/21 Printer 200
05/10/21 Sales 2800 24/10/21 Laptop 1700
26/10/21 Wages 820
30/10/21 Rent 850
31/10/21 Drawings 1200
31/10/21 Balance c/d 8030
13600 13600
3

01/11/21 Balance b/d 8030
Cash Account
Date Particulars LF Amount Date Particulars LF Amount
01/10/21 Capital 4800 12/10/21 Repair 110
23/10/21 Sales 1800
23/10/21 Sales 700
31/10/21 Rayan 150 31/10/21 Balance c/d 7340
7450 7450
01/11/21 Balance b/d 7340
Flat Account
Date Particulars LF Amount Date Particulars LF Amount
01/10/21 Capital 45000 31/10/21 Balance c/d 45000
45000 45000
01/11/21 Balance b/d 45000
Car Account
Date Particulars LF Amount Date Particulars LF Amount
01/10/21 Capital 12000 31/10/21 Balance c/d 12000
12000 12000
01/11/21 Balance b/d 12000
Capital Account
Date Particulars LF Amount Date Particulars LF Amount
01/10/21 Bank 10000
4

01/10/21 Cash 4800
01/10/21 Flat 45000
31/10/21 Balance c/d 71800 01/10/21 Car 12000
71800 71800
01/11/21 Balance b/d 71800
Purchases Account
Date Particulars LF Amount Date Particulars LF Amount
18/10/21 Home Ltd 5400 02/10/21 Home Ltd 250
31/10/21 Balance c/d 5150
5400 5400
01/11/21 Balance b/d 5150
Home Ltd Account
Date Particulars LF Amount Date Particulars LF Amount
02/10/21 Purchases 250 18/10/21 Purchases 5400
31/10/21 Balance c/d 5150
5400 5400
01/11/21 Balance b/d 5150
Computer Account
Date Particulars LF Amount Date Particulars LF Amount
04/10/21 Bank 800 31/10/21 Balance c/d 800
800 800
01/11/21 Balance b/d 800
5

Printer Account
Date Particulars LF Amount Date Particulars LF Amount
04/10/21 Bank 200 31/10/21 Balance c/d 200
200 200
01/11/21 Balance b/d 200
Repair Account
Date Particulars LF Amount Date Particulars LF Amount
12/10/21 Cash 110 31/10/21 Balance c/d 110
110 110
01/11/21 Balance b/d 110
Rent Account
Date Particulars LF Amount Date Particulars LF Amount
21/10/21 Bank 850 30/10/21 Bank 800
31/10/21 Balance c/d 50
850 850
01/11/21 Balance b/d 50
Rayan Account
Date Particulars LF Amount Date Particulars LF Amount
23/10/21 Sales 300 31/10/21 Cash 150
31/10/21 Balance c/d 150
300 300
01/11/21 Balance b/d 150
6

Sales Account
Date Particulars LF Amount Date Particulars LF Amount
05/10/21 Bank 2800
23/10/21 Rayan 300
31/10/21 Balance C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 5600
01/11/21 Balance b/d 5600
Laptop Account
Date Particulars LF Amount Date Particulars LF Amount
24/10/21 Bank 1700 31/10/21 Balance c/d 1700
1700 1700
01/11/21 Balance b/d 1700
Wages Account
Date Particulars LF Amount Date Particulars LF Amount
26/10/21 Bank 820 31/10/21 Balance c/d 820
820 820
01/11/21 Balance b/d 820
Drawings Account
Date Particulars LF Amount Date Particulars LF Amount
31/10/21 Bank 1200 31/10/21 Balance c/d 1200
1200 1200
01/11/21 Balance b/d 1200
7

(c) Preparation of Trial Balance as on 31st October 2021
Particulars Debit Credit
Bank 8030
Cash 7340
Flat 45000
Car 12000
Capital 71800
Purchases 5150
Home Ltd 5150
Computer 800
Printer 200
Repair Expenses 110
Rent 50
Rayan 150
Laptop 1700
Wages 820
Drawings 1200
Sales 5600
TOTAL 82550 82550
(d) Income Statement for the period ended 31st October 2021
INCOME STATEMENT FOR THE PERIOD ENDED 31ST OCTOBER 2021
Particulars Amount (£) Amount (£)
Net Sales 5600
8

Less: Cost of Goods Sold : -
Purchases 5150
Less : Closing Stock 320 4830
Gross Profit 770
Less: Operating Expenses
Repair Expenses 110
Rent 50
Wages 820 980
Net Loss -210
(e) Statement of Financial Position
BALANCE SHEET AS ON 31ST OCTOBER 2021
Particulars Amount (£ )
ASSETS
Current Assets:
Stock 320
Bank 8030
Cash 7340
Debtor – Rayan 150
Total Current Assets (A) 15840
Non-Current Assets:
Flat 45000
Car 12000
Computer 800
Printer 200
9

Laptop 1700
Total Non-Current Assets (B) 59700
Total Assets ( A+B ) 75540
EQUITY AND LIABILITY
Liabilities:
Current Liabilities:
Creditors - Home Ltd. 5150
Total Current Liabilities (A) 5150
Equity:
Capital Invested 71800
Less: Drawings 1200
Add: Loss for the period -210
Total Equity (B) 70390
Total Liability ( A + B ) 75540
(f) Letter addressed to Anne
From the above analysis, it has been found that the Anne has withdraw £1200 from the
funds of business for her personal use. This money is consider as the drawing. It also effect the
capital of business which was invested in the beginning of business.
PART B
(a) Calculation of Accounting Ratios of Anne Business: -
 Net Profit Margin = (Net profit / Net Sales) * 100 = (- 210 / 5600) * 100 = (3.75 %)
 Gross Profit Margin = (Gross Profit / Net Sales) * 100 = (770 / 5600) * 100 = 13.75 %
 Current Ratio = Current Assets / Current Liabilities = 15480 / 5150 = 3.01 times
10

 Acid Test ratio = (Current Assets – Stock) / Current Liabilities = (15480 – 320) / 5150 =
2.94 times
 Accounts Receivable Collection Period = (Average Debtors / Net Sales) * 365 = (150 /
5600) * 365 = 9.78 Days
 Accounts Payable Payment Period = (Average Creditors / Net Purchases) * 365 =
(5150 / 5150) * 365 = 365 Days
(b) Interpretation of ratios calculated above considering competitor and covid 19 impact on the
entity
Above ratio analysis interpret that the current ratio of the business of Anne is 3.01 times
and the same ratio of competitor is analysed as 2.06 times which is consider as an average which
represent the liquidity position of Anne's organisation is better than their competitor. This
business organisation also have a good cash position as it is crossing the ideal current ratio which
is consider as 2. Negative margin ratio indicate that the business organisation of Anne is not
earning regular or constant profits as their competitors are earning. It may be because of COVID-
19 as it decrease the sales of organisation (Angiulli, Fassetti and Saccà 2018). Lock down during
pandemic result in the stoppage of working of business organisation and get them in trouble and
revenue are not meeting their benchmark. It is consider as the main reason why the organisation
was not able to generate sufficient amount of profit in 2021. This company also have power to
handle the situation of dissolution or liquidation when the organisation have to make the
payment to their debts. It has been analysed by the acid test ratio of organisation.
CONCLUSION
From the above report, it has been conclude that the keeping record of all business
transactions is the most important part of a business organisation. Final accounts have been
prepared after recording the transactions. Next step of preparing books is to do ratio analysis
which interpret the the strength and capability of organisation. Ratios calculated in this report are
calculated after considering the impact of COVID-19 on business operations.
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References:
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archaeological underwater 3D recording and mapping. Journal of Cultural
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logistics and supply chain management—A bibliometric literature review from 2016
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Perez, M.R.L., Gerardo, B. and Medina, R., 2018, November. Modified sha256 for securing
online transactions based on blockchain mechanism. In 2018 IEEE 10th International
Conference on Humanoid, Nanotechnology, Information Technology, Communication
and Control, Environment and Management (HNICEM) (pp. 1-5). IEEE.
Rimba, P., Tran, A.B., and Xu, X., 2020. Quantifying the cost of distrust: Comparing
blockchain and cloud services for business process execution. Information Systems
Frontiers. 22(2). pp.489-507.
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