Recording Business Transactions

This report focuses on preparing and maintaining the financial records of Anne’s business. It includes journal books, ledger books, trial balance, income statement, balance sheet, and ratio analysis. The financial position of Anne’s business is good but there is still room for improvement in terms of reducing expenses and increasing profits.

Recording business
transactions

Table of Contents
Introduction:..............................................................................................................3
Part A.........................................................................................................................3
Journal books of Anne’s business as on 31 October, 2021...................................3
Ledger books of Anne’s business as on 31 October, 2021....................................4

Introduction:
This report focuses on preparing and maintaining the financial records of
Anne’s business. In this Anne is sole trader dealing in purchasing and selling of
furniture. Here, all monetary transactions are firstly, recorded in the journal books
then these are posted in ledger accounts and at the last these are summarized in
income statements and balance sheet. In this income statement is prepared to
ascertain revenues and expenses of specific period. Whereas, balance sheet is
prepared to ascertain true and fair position of business enterprises. Besides this,
financial tools are used to evaluate the current performance of business and to
compare it with other companies of same industry. Here, ratios are used to evaluate
liquidity and profitability position of the enterprise.
Part A
a) Journal books of Anne’s business as on 31 October, 2021
Date Particular Dr.
£
Cr.
£
1.10.2021 Bank
Cash
Flat
Car
Capital
(started operations with these assets)
10000
4800
45000
12000
71800
2.10.2021 Purchase
Home ltd. (Creditor)
(purchased furniture on credit)
5400
5400
4.10.2021 Computer
Printer
Bank
Purchased computer and printer )
800
200
1000
5.10.2021 Bank
Sales
(Sold goods and received amount)
2800
2800
12.10.2021 Repairing expenses 110

Bank
( incurred expenses on repairing printer)
110
18.10.2021 Home ltd (creditor)
Purchase return
(furniture returned to home ltd)
250
250
21.10.2021 Bank
Rent
(Amount received of rent)
800
800
23.10.2021 Cash
Debtor (Rayan)
Sales
(sold goods to rayaan and received half
payment in cash and half on credit)
1800
300
2100
23.10.2021 Cash
Sales
(sold goods and received in cash)
700
700
24.10.2021 Laptop
Bank
(laptop purchased and payment made
through cheque)
1700
1700
26.10.2021 Wages
Bank
( made payment to worker)
820
820
30.10.2021 Rent
Bank
(made payment of rent)
850
850
31.10.2021 Drawing
Bank
(expenses incurred for personal
purposes)
1200
1200
31.10.2021 Cash
Rayan (debtor)
(amount received from Rayan)
150
150
b) Ledger books of Anne’s business as on 31 October, 2021
Bank account

Date Details Fol Amount
£
Date Details Fol Amou
nt £
1.10.
2021
Capital 10000 04.10.20
21
Computer and
printer
1000
05.10
.2021
Sales 2800 24.10.20
21
laptop 1700
21.10
.2021
Rent 800 26.10.20
21
Wages 820
31.10
.2021
Balance
c/f
8030 30.10.20
21
Rent 850
31.10.20
21
drawing 1200
total 13600 total 13600
1.11.202
1
Balance c/f 8030
Cash account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
1.10.
2021 Capital 4800 Repairing
expenses
110
23.10
.2021
Sales 1800

23.10
.2021
Sales 700 31.10.20
21
By balance c/f 7340
31.10
.2021
Rayan
(debtor)
150
1.11.
2021
Balance
b/d
7340
Flat account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
01.10
.2021
capital 45000 31.10.20
21
Balance c/d 45000
1.11.
2021
Balance
b/f
45000
Car account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
01.10
.2021
capital 12000 31.10.20
21
Balance b/d 12000
1.11. Balance 12000

2021 c/d
Capital account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
31.10
.2021
Balance
b/d
71,800 01.10.20
21
Bank 10000
01.10.20
21
Cash 4800
01.10.20
21
Flat 45000
01.10.20
21
car 12000
1.11.202
1
Balance c/d 71800
Creditor
Date Details Fol Amount
£
Date Details Fol Amou
nt £
18.10
.2021
Purchase
return
250 02.10.20
21
purchase 5400
31.10.20
21
Balance c/f 5150
1.11.
2021
Balance
b/d
5150

Purchase account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
02.10
.2021
Home ltd
(creditor)
5400 31.10.20
21
By balance c/f 5400
1.11.
2021
Balance
c/f
5400
Asset (computer, laptop, printer) account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
04/10
/2021
Bank 1000 31.10.20
21
Balance c/f 2700
21/10
/2021
Bank 1700
01/11
/2021
Balance
b/d
2700
Sales account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
31.10
.2021
Balance
c/f
5600 05.10.20
21
bank 2800

23.10.20
21
Cash 1800
23.10.20
21
Rayan
(debtor)
300
23.10.20
21
Cash 700
1.11.202
1
Balance b/f 5600
Expenses account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
12.10
.2021
Cash 110 31.10.20
21
By balance c/f 1780
26.10
.2021
Bank
(wages)
820
30.10
.2021
Bank
(rent)
850
1.11.
2021
Balance
b/f
1780
Income account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
31.10
.2021
Balance
c/f
800 21.10.20
21
Bank 800

(rent)
1.11.202
1
Balance b/f 800
Purchase return account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
31.10
.2021
Balance
c/f
250 18.10.20
21
Home ltd
(creditor)
250
1.11.202
1
Balance b/d 250
Drawing account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
31.10
.2021
bank 1200 31.10.20
21
Balance c/d 1200
1.11.
2021
Balance
b/d
1200

Debtor account
Date Details Fol Amount
£
Date Details Fol Amou
nt £
21.10
.2021
sales 300 31.10.20
21
cash 150
31.10.20
21
Balance c/f 150
1.11.
2021
Balance
b/d
150
c) Trial balance as on 31.October, 2021
Particular Debit (£) Credit (£)
Bank
Cash
Flat
Car
Capital
Creditor
Purchase
Computer
Printer
Laptop
Sales
8030
7340
45000
12000
5400
800
200
1700
71,800
5150
5600

Expenses
Incomes
Purchase return
Drawing
Debtor
Total
1780
1200
150
83,600
800
250
83,600
d) Income statement as on 31 October 2022
Particular Amount (£) Amount (£)
Sales
Less:
Cost of goods sold
( Opening stock + purchase – closing
stock )
(5150 – 320)
Gross profit/loss of the year
Less : operating expenses
Repair expenses
Wages
Rent
Add : operating income
5600
(4830)
110
820
850
(1780)
770

Rental income
Net profit/loss for the period
800
(210)
Notes:
Net purchases = (purchase – purchase return)
= 5400 – 250
= 5150
e) Balance sheet as on 31 October, 2022
Particulars Amount
(£)
Assets :
Fixed assets:
Flat
Car
Computer
Printer
Laptop
Current assets :
Bank
Cash
Debtor
Closing stock
Total assets
Liabilities:
45000
12000
800
200
1700
8030
7340
150
320
75,540

Capital
Creditor
Total liabilities
70,390
5150
75,540
Special note:
Capital of business concern 71,800
Less: (Net loss + Drawing)
= 210 + 1200
= (1410)
So, total capital is 70,390
f) Query regarding personal expenses
Dear Anne
Hope you are doing well!
This is written to resolve your query regarding personal expenses. So, as per
business entity concept business is different and individual is different due to
which personal expenses of the owner will not be recorded in the books of
accounts. Here, expenses to book flight tickets to Scotland for holiday purpose are
of personal nature due to which these are considered as drawings. So, entry passed
in the books is drawings account debited and bank account is credited. This is the
rule which applied to each and every business whether its company or any private
businesses.
With regards,
Finance department

Part B
Calculations of ratios of Anne’s business are below: (Chirapanda, S., 2019)
1. Gross profit ratio: It is a type of ratio calculated to ascertain gross profits and
losses of the company. Calculating of gross profit involves two elements
such as cost of goods sold and sales.
Formula, gross profit / net sales*100
By applying formula, 770/5600 * 100
13.75%
2. Net profit ratio: It is calculated to ascertain net profit and losses as on
specified date.
Formula, net profit or losses / sales * 100
By applying formula, 210 /5600 *100
3.75%
3. Current ratio: It is used to check the liquidity position of the enterprise.
Whether, company would be able to make payment of short term debts or
not.
Formula, current asset/ current liabilities
By applying formula, 15,840 / 5150
3.07
4. Quick ratio: It is used to check liquidity position of the business concern.
Formula, quick assets / current liabilities

Quick assets are calculated by deducting stock and prepaid expenses from
current assets.
By applying formula, 15,520 / 5150
3.01
5. Average payment period: It is an average period business takes to make
payment of its creditors.
Formula, credit purchases / 365 days
By applying formula, 5150 /365
14 days
6. Average receivable period: It is amount of time business takes to receive its
payments.
Formula, credit sales / 365
By applying formula, 150 / 5600 * 365
10 days
b) Interpretation of calculations:
According to analysis done, it is figured out company’s current ratio is good,
as it is showing 3:07 which means company would be able to make payment of
short term debts on time. Because ideal current ratio is 2:1 which Anne business is
fulfilling and depicting company would easily make payment of short term
liabilities. In comparison to other companies, its current ratio is good. (Dean, G.,
Clarke, F. and Graves, F., 2017 Well coming to quick ratio, company is having
ratio of 3:1 which is also shows its commendable payment making ability. When
comes to gross profit ratio, company profit making capacity is better than its
competitors. As it is 13.75% which is comparatively good than other companies.
When comes to net profit ratio, it is showing losses to company due to outbreak of
pandemic. As pandemic has disrupted entire economy and left people with nothing.
This has left people unemployed, led to closure of businesses due to no revenue

and various other negative impacts. So, due to these reasons company has losses in
the year, 2020. (Chung, J. and Cho, C. H., 2018. )
Conclusion:
With respect to above report, it is concluded that company has to record all
of its monetary transactions systematically in order to communicate it to the users.
Companies records all the transactions firstly in journal books then took these
balances in ledger account and trial balance. At the last, income statement and
balance sheet is prepared to ascertain true and fair position of concern as on
specified date. In this report, ratios are calculated to evaluate performance of
business and compare with other entities.

References:
Books and journals:
Chirapanda, S., 2019. Identification of success factors for sustainability in family
businesses: case study method and exploratory research in Japan. Journal of
Family Business Management.
Chung, J. and Cho, C. H., 2018. Current trends within social and environmental
accounting research: a literature review. Accounting Perspectives, 17(2).
pp.207-239.
Dean, G., Clarke, F. and Graves, F., 2017. Replacement costs and accounting
reform in post-World War I Germany (Vol. 2). Taylor & Francis.
Deegan, C., 2017. Twenty five years of social and environmental accounting
research within Critical Perspectives of Accounting: Hits, misses and ways
forward. Critical Perspectives on Accounting, 43. pp.65-87.
Gullifer, L., 2021. The Financing of Micro-Businesses in the UK: The Current
Position and the Way Forward. The financing of micro-businesses in the
UK: the current position and the way forward (in N. Orkun Akseli & John
Linarelli, The Future of Commercial Law: Ways Forward for Change and
Reform, Hart 2020), University of Cambridge Faculty of Law Research
Paper, (17).
Håkansson, H. and Snehota, I. eds., 2017. No business is an island: Making sense
of the interactive business world. Emerald Group Publishing.
Kapoor, N. and Goel, S., 2017. Board characteristics, firm profitability and
earnings management: evidence from India. Australian Accounting
Review, 27(2). pp.180-194.
Kim, M. J., Lee, K. M. and Earle, J. S., 2021. Does the Community Reinvestment
Act increase lending to small businesses in lower income
neighborhoods?. Economics Letters, 209. p.110146.
Zwick, G. A. and Jurinski, J. J., 2019. VALUATION TECHNIQUES AND
STRATEGIES TO MINIMIZE TAXES ON FAMILY BUSINESSES.
In Tax and Financial Planning for the Closely Held Family Business.
Edward Elgar Publishing.