Recording Business Transactions: Journal Entries, Ledgers, Financial Statements, and Ratios

This report highlights the financial recording of different firms which are provided in the case. These entries were recorded in the books of accounts and from there the balances were taken to trial balance to help formulate the financial statements of the businesses. It also includes the calculation of different financial ratios and analysis of Anne's enterprise in comparison to competitors and the impact of Covid-19 pandemic on the business.

Business Transactions

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK A...........................................................................................................................................3
a) Record the Journal entry in T- accounts.................................................................................3
b) ACCOUNTING LEDGERS:..................................................................................................5
c) TRIAL BALANCE.................................................................................................................8
d) Prepare Income Statement ending on 31 October 2021.........................................................9
e) Balance Sheet..........................................................................................................................9
f) What are drawings in the case of Anne.................................................................................10
TASK B ........................................................................................................................................11
a) Calculation of different accounting ratios.............................................................................11
b) Analysis for Anne in comparison to competitor and Impact of Covid-19 pandemic...........11
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business transactions refers to the financial transaction which takes place between different
parties that are interested in a business. This transaction refers to an exchange of goods or
services of a business in regards of earning cash (Eliseeva, 2018). These transactions are
recorded into the books of accounts of a business in the scope of determining a profit. In this
report the main highlight is given to these recording tasks and then preparing the different
financial statements. In the last, the report highlights the calculation of different ratios of
financial theory.
TASK A
a) Record the Journal entry in T- accounts.
JOURNAL ENTRIES
Date Particulars Debit Credit
01/10/21 Bank
Cash
Flat
Car
Capital
(Business being started with cash, flat and a car)
10000
4800
45000
12000
71800
02/10/21 Purchases
Home Ltd
(goods of the firm i.e., furniture being purchased on
credit from Home ltd.)
5400
5400
04/10/21 Computer
Printer
Bank
(Computer and printer being bought for cash)
800
200
1000
05/10/21 Bank
Sales
2800
2800

(Goods worth 2800 being sold)
12/10/21 Repair Expense
Cash
(repair expenses incurred for repairs done in printer)
110
110
18/10/21 Home Ltd.
Purchases
(Furniture of wroth 250 being returned to home ltd.)
250
250
21/10/21 Bank
Rent Income
(Rent being received by the organisation)
800
800
23/10/21 Rayan
Cash
Sales
(sold goods to Rayan worth 2100, out of which,
1800 have been received by the business)
300
1800
2100
23/10/21 Cash
Sales
(sold goods to David for cash)
700 700
24/10/21 Laptop
Bank
(A new laptop has been bought for official use.
1700
1700
26/10/21 Wages
Bank
(shopkeeper has been paid monthly wages)
820
820
30/10/21 Rent Expenses
Bank
(a place being rented by the business and paid
expenses for same)
850
850

31/10/21 Drawings
Bank
(Money being paid by the business for a personal
expense of the owner)
1200
1200
31/10/21 Cash
Rayan
(Rayan, the debtor of the business paid for the debt)
150
150
b) ACCOUNTING LEDGERS:
Bank Account
Date Particulars Ref Amount Date Particulars Ref 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
Cash Account
Date Particulars Ref Amount Date Particulars Ref 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
Flat Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 45000
31/10/21 Balance c/d 45000
45000 45000
Car Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 12000
31/10/21 Balance c/d 12000
12000 12000
Capital Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Bank 10000
01/10/21 Cash 4800
01/10/21 Flat 45000
31/10/21 Balance c/d 71800 01/10/21 Car 12000
71800 71800
Purchases Account
Date Particulars Ref Amount Date Particulars Ref Amount
18/10/21 Home Ltd 5400 02/10/21 Home Ltd 250

31/10/21 Balance c/d 5150
5400 5400
Home Ltd Account
Date Particulars Ref Amount Date Particulars Ref Amount
02/10/21 Purchases 250 18/10/21 Purchases 5400
31/10/21 Balance c/d 5150
5400 5400
Computer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 800
31/10/21 Balance c/d 800
800 800
Printer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 200
31/10/21 Balance c/d 200
200 200
Repair Expenses Account

Date Particulars Ref Amount Date Particulars Ref Amount
12/10/21 Cash 110
31/10/21 Balance c/d 110
110 110
Rent Account
Date Particulars Ref Amount Date Particulars Ref Amount
21/10/21 Bank 850 30/10/21 Bank 800
31/10/21 Balance c/d 50
850 850
Rayan Account
Date Particulars Ref Amount Date Particulars Ref Amount
23/10/21 Sales 300 31/10/21 Cash 150
31/10/21 Balance c/d 150
300 300
Sales Account
Date Particulars Ref Amount Date Particulars Ref Amount
05/10/21 Bank 2800
23/10/21 Rayan 300
31/10/21 Balacne C/d 5600 23/10/21 Cash 1800

23/10/21 Cash 700
5600 5600
Laptop Account
Date Particulars Ref Amount Date Particulars Ref Amount
24/10/21 Bank 1700
31/10/21 Balance c/d 1700
1700 1700
Wages Account
Date Particulars Ref Amount Date Particulars Ref Amount
26/10/21 Bank 820
31/10/21 Balance c/d 820
820 820
Drawings Account
Date Particulars Ref Amount Date Particulars Ref Amount
31/10/21 Bank 1200
31/10/21 Balance c/d 1200
1200 1200
c) TRIAL BALANCE
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
TOTALS 82550 82550
d) Prepare Income Statement ending on 31 October 2021.
INCOME STATEMENT
Particulars Amount (£) Amount (£)
Net Sales 5600
Less: Cost of Goods Sold 4830
Purchases 5150
Add: Closing Stock 320
Gross Profit 770

Less: Operating Expenses 980
Repair Expenses 110
Rent 50
Wages 820
Net Loss -210
e) Balance Sheet
Particulars Amount (£ )
ASSETS
Current Assets
Stock 320
Bank 8030
Cash 7340
Debtor (Rayan) 150
Total Current Assets 15840
Fixed Assets
Flat 45000
Car 12000
Computer 800
Printer 200
Laptop 1700
Total Fixed Assets 59700
Total ASSETS 75540

EQUITY AND LIABILITIES
Liabilities
Current Liabilities
Creditors (Home Ltd.) 5150
Total Current Liabilities 5150
Equity
Capital 71800
Less: Drawings 1200
Net Loss -210
Total Equity 70390
Total Liabilities 75540
f) What are drawings in the case of Anne.
A business enterprise is considered a different entity than its owners. This creates a difference
between a business and its owners (Grzeszczak, 2020). Any expense of business is not
considered an expense of the owners and vice versa. Hence, the amount of 1200 which was paid
by the business bank account was not an expense of business but these were actually drawings
done by the owner Linda for her holiday.
TASK B
a) Calculation of different accounting ratios
 Net Profit Margin = ( Net profit / Net Sales ) * 100 (Xu and Dellaportas, 2021)
= ( -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
 Acid Test ratio = ( Current Assets – Stock ) / Current Liabilities = ( 15480 – 320 ) /
5150 = 2.94

 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) Analysis for Anne in comparison to competitor and Impact of Covid-19 pandemic
From the above analysis it can be seen that Anne's enterprise is not performing well in
the market where the rivals of the business are earning better profits at low cost. The most
business in the industry are showing high short term debt when compared to its current assets,
which is a bad situation to be in as this impacts the liquidity position of the business but Anne's
business enjoys high working capital which is necessary to for the business to meet its short term
obligations (Rambaud, and Chenet, 2020).
The Covid-19 pandemic has created chaos among the marketplace and all over the world.
Most of the small enterprises had to shut their business operations due to no availability of
financial funds. The business had seen tremendous losses due to no demand in the market.
Similar effects were seen by Anne in her business as the saw decline in its dealings which in
return reduced its profitability (Tiscini, Testarmata, Ciaburri, and Ferrari, 2020). To regain the
profits lost in the pandemic it is highly recommended that the business find such efficient ways
which would help the get back the demand in the market and focus on getting to the break even
point post-pandemic. Once the issues in the marketploace have dealt with, the business can make
new plans on how to maintain their place in the business post an era of covid-19.
The ratio analysis of of Anne shows the business is dealing in different losses and the
business has to focus on bringing down its operating cost. So, it can be concluded from the above
discussion that Anne should revise the business strategy that they are having and focus on better
retention in the marketplace (Vuona, 2019).
CONCLUSION
It can be concluded from the above report that, recording of business transactions helps a
business determine its profits and financial ratios which helps a business critically determine its
financial strategies. The report highlights the financial recording of different firms which are
provided in the case. These entries were recorded in the books of accounts and from there the
balances were taken to trial balance to help formulate the financial statements of the businesses.

REFERENCES
Books and Journals
Eliseeva, E., 2018. Digitalization of Russian companies accounting management. Information
Innovative Technologies. (1). pp.617-622.
Grzeszczak, M., 2020. Intelligent Support of Accounting IT Systems in Modern Enterprises.
In Towards Industry 4.0—Current Challenges in Information Systems (pp. 61-74).
Springer, Cham.
Rambaud, A. and Chenet, H., 2020. How to Re-Conceptualize and Re-Integrate Climate Finance
Into Society Through Ecological Accounting?. Available at SSRN 3725538.
Tiscini, R., Testarmata, S., Ciaburri, M. and Ferrari, E., 2020. The blockchain as a sustainable
business model innovation. Management Decision.
Vuona, B., 2019. Foreign Corrupt Practices Act. Am. Crim. L. Rev.. 56. p.979.
Xu, G. and Dellaportas, S., 2021. Challenges to Professional Independence in a Relational
Society: Accountants in China. Journal of Business Ethics. 168(2). pp.415-429.