Financial Analysis and Comparison of Mel Company

The assignment provides a comprehensive financial analysis of Mel company in comparison to its competitor. It includes an evaluation of Mel's profitability, liquidity, and efficiency metrics, such as gross profit margin, current ratio, quick ratio, account receivable days, and account payable days. The analysis reveals that Mel's profitability is better than its competitor, but its liquidity position is lower. The assignment also provides a conclusion based on the findings.

Recording Business
Transactions

Table of Contents
INTRODUCTION...........................................................................................................................1
PART-A...........................................................................................................................................1
a) Double entry records of transaction in T-account...................................................................1
b) account balancing and bringing down an opening balance....................................................2
c) Trial balance............................................................................................................................5
d) Income statement....................................................................................................................6
e) Statement of financial position...............................................................................................6
PART- B..........................................................................................................................................7
I) ratio analysis............................................................................................................................7
ii) comparison of the performance between the competitor and Mel statements........................8
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Business transaction refers to an activity that is analysed in relation to the monetary terms and
affects the profitability and the financial position of the enterprise (Altman, 2015). The present
report is based on the business transactions of Mel who has started its business on 1 October
2018. Further the report includes the recording, classifying, analysing and interpreted the results
of the business transaction by preparing the journal, ledger, trial balance, income statement and
the balance sheet for knowing the position of the business (Horrigan, and et.al., 2015). It also
describes the performance by finding the ratios and comparing with its competitors.
PART-A
a) Double entry records of transaction in T-account
Date Particulars Amount
Dr. Cr.
01/09/18
Cash a/c Dr.
Bank a/c Dr.
To Capital a/c
£5000
£900
£5,900
02/09/18
Purchase a/c Dr.
To Bill's a/c
£900
£900
03/09/18
Furniture a/c Dr.
To Bank a/c
£600
£600
05/09/18
Cash a/c Dr.
To Sale a/c
£1100
£1,100
06/09/18
Purchase a/c Dr.
To Cash a/c
£400
£400
10/09/18
Rent a/c Dr.
To Cash a/c
£400
£400
12/09/18
Stationary a/c Dr.
To Bank a/c
£200
£200
18/09/18 Bill a/c Dr. £500 £500
1

To Bank a/c
21/09/18
Purchase a/c Dr.
To Bill a/c
£100
£100
23/09/18
Till a/c Dr.
To Sales a/c
£400
£400
23/09/18
Cash a/c Dr.
Rob a/c Dr.
To Sale a/c
£1000
£500
£1,500
24/09/18
Car a/c Dr,
To Bank a/c
£1500
£1,500
30/09/18
Wages a/c Dr,
To Cash a/c
£800
800
30/09/18
Drawing a/c dr
office computer a/c dr
To cash a/c
£400
£400 £800
b) account balancing and bringing down an opening balance
capital account
Date Particulars amount Date particulars amount
01/09/18 By cash £5,000.00
01/09/18
To closing
bal. £5,900.00 01/09/18 By Bank £900.00
£5,900.00 £5,900.00
Purchase
account
Date Particulars amount Date particulars amount
02/09/18 To Bill's a/c £900.00
06/09/18 To cash a/c £400.00
2

21/09/18 To bill a/c £100.00 21/09/18
By closing
bal. £1,400.00
£1,400.00 £1,400.00
Bills account
Date Particulars amount Date particulars amount
18/09/18 To Bank a/c £500.00 02/09/18
By purchase
a/c £900.00
21/09/18
To closing
bal. £500.00 21/09/18
By purchase
a/c £100.00
£1,000.00 £1,000.00
Furniture a/c
Date Particulars amount Date particulars amount
03/09/18 To Bank a/c £600.00 03/09/18
By closing
bal. £600.00
£600.00 £600.00
Sales a/c
Date Particulars amount Date particulars amount
05/09/18 By cash a/c £1,100.00
23/09/18 By cash a/c £1,000.00
23/09/18 By rob a/c £500.00
23/09/18
By closing
bal. £3,000.00 23/09/18 By till a/c £400.00
£3,000.00 £3,000.00
3

Rent a/c
Date Particulars amount Date particulars amount
10/09/18 To cash a/c £400.00 10/09/18
By closing
bal. £400.00
£400.00 £400.00
Stationary a/c
Date Particulars amount Date particulars amount
12/09/18 To Bank a/c £200.00 12/09/18
By closing
bal. £200.00
£200.00 £200.00
Till a/c
Date Particulars amount Date particulars amount
23/09/18 To sales a/c £400.00 23/09/18
By closing
bal. £400.00
£400.00 £400.00
Rob a/c
Date Particulars amount Date particulars amount
23/09/18 To sales a/c £500.00 23/09/18
By closing
bal. £500.00
£500.00 £500.00
Car a/c
Date Particulars amount Date particulars amount
4

24/09/18 To Bank a/c £1,500.00 24/09/18
By closing
bal. £1,500.00
£1,500.00 £1,500.00
Wages a/c
Date Particulars amount Date particulars amount
30/09/18 To cash a/c £800.00 30/09/18
By closing
bal. £800.00
£800.00 £800.00
Drawings a/c
Date Particulars amount Date particulars amount
30/09/18 To cash a/c £400.00 30/09/18
By closing
bal. £400.00
£400.00 £400.00
Office computer
a/c
Date Particulars amount Date particulars amount
30/09/18 To cash a/c £400.00 30/09/18
By closing
bal. £400.00
£400.00 £400.00
Cash a/c
Date Particulars amount Date particulars amount
01/09/18
To capital
a/c £5,000.00 06/09/18
By purchase
a/c £400.00
5

05/09/18 To sales a/c £1,100.00 10/09/18 By rent a/c £400.00
23/09/18 To sales a/c £1,000.00 30/09/18 By wages a/c £800.00
30/09/18
By drawing
a/c £400.00
30/09/18
By office
computer a/c £400.00
30/09/18
By closing
bal. £4,700.00
£7,100.00 £7,100.00
Bank a/c
Date Particulars amount Date particulars amount
01/09/18
To capital
a/c £900.00 03/09/18
By furniture
a/c £600.00
24/09/18
To closing
bal. £1,900.00 12/09/18
By stationary
a/c £200.00
18/09/18 Bill a/c £500.00
24/09/18 By car a/c £1,500.00
£2,800.00 £2,800.00
c) Trial balance
Trial balance
for the year ended 31
september 2019
Particulars Debit Credit
capital account 5900
Purchase account 1400
Bills account 500
Furniture a/c 600
Sales a/c 3000
6

Rent a/c 400
Stationary a/c 200
Till a/c 400
Rob a/c 500
Car a/c 1500
Wages 800
Drawings a/c 400
Office computer a/c 400
cash 4700
bank o/d 1900
£11,300.00 £11,300.00
d) Income statement
Income Statement
For the year ended 31
September 2019
Particulars Amount Total amount
Revenues-
Sales £3,000.00
Total revenue £3,000.00
Cost of goods sold
Purchases £1,400.00
closing stock £500.00
Total COGS £900.00 £900.00
Gross profit £2,100.00
Expenses-
Rent £400.00
Stationery £200.00
7

Wages £800.00
Total expenses £1,400.00
Net income before tax £700.00
Tax 0
Net income £700.00
e) Statement of financial position
Balance sheet
For the year ended 31
September 2019
Assets Amount Total amount
Fixed assets-
Furniture £600.00
Car £1,500.00
Office computer £400.00
Total fixed assets £2,500.00
Current assets-
Cash £4,700.00
Debtors £900.00
closing stock £500.00
Total current assets £6,100.00
Total assets £8,600.00
Non-current liabilities
Capital £5,900.00
add: net profit 700
8

Less: drawing 400 £6,200.00
current liabilities
creditor £500.00
Bank O/D 1900 £2,400.00
Total liabilities £8,600.00
PART- B
I) ratio analysis
Profitability ratios
Particulars formula amount
Gross profit £2,100.00
Net profit £700.00
sales £3,000.00
Net profit margin Net profit/sales*100 23.33%
Gross profit margin Gross profit/sales*100 70.00%
Liquidity ratios
Particulars formula amount
Total current assets £6,100.00
Total current liabilities £2,400.00
closing stock £500.00
Quick assets £5,600.00
Current ratio 2.54
Quick ratio 2.33
Activity ratios
Accounts payable collection period creditors/COGS*360 200
Debtors £900.00
9

Accounts payable collection period creditors/COGS*360 200
creditors £500.00
sales £3,000.00
Cost of goods sold £900.00
Account receivable collection period Debtors/sales*360 108
ii) comparison of the performance between the competitor and Mel statements
From the above interpretation it is concluded that the net profit margin of the Mel is resulted as
23.33% which is greater than its competitor's net profit margin that is equals to 16% which
means Mel is earning higher profits and has control its cost in relation to the sales, taxes and
interest (Cañibano, 2018). The gross profit margin of the Mel is also greater equates to 70% with
the margin of 5% that means it has higher revenues from its sales and operations are efficiently
managed as compared to its competitor having 65% as the gross profit margin. Overall the
profitability of the Mel is better than the competitor. The current and the quick ratio of the Mel
resulting as 2.54 and 2.33 which are lower than its competitor who has 4.50 as the current ratio
and 4.0 as the quick ratio. From this it is indicated that the liquidity position or capability to meet
the short term obligations of the Mel is low in comparison with the ability of its competitor. The
account receivable of the Mel is evaluated as 108 days which is high from its rivalry that is 100
days which states a negative sign for the Mel as it reflects that it has high number of outstanding
receivables and takes too much time in converting its receivables into cash (Horak, and
Boksova, 2018). The accounts payable payment period of the Mel is calculated as 200 days
which is also higher as the competitor has 105 days as its accounts payable period which shows a
positive sign in relation to the timely payment is made by the Mel to its suppliers than its
competitor.
CONCLUSION
From the above report it is concluded that recording the business transactions is essential for
every organisation in ascertaining and analysing the profitability and the financial position of the
business. It also facilitates the information regarding the performance of the entity in comparison
with its competitors so that the firm could achieve the competitive advantage and reaches the
competitive edge in the market against its rivalry. It assists the Mel in determining that the
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