Recording Business Transactions: Importance and Impact of COVID-19 on Income Statement

This document discusses the importance of recording business transactions and the impact of COVID-19 on income statements. It covers the need for accounting information, advantages and disadvantages of recording accounting information, and provides examples of journal entries and ledger accounts. It also includes an income statement for Airman Co. and explores the effects of COVID-19 on income statement items.

RECORDING
BUSINESS
TRANSACTIONS

Table of Contents
INTRODUCTION...........................................................................................................................3
ASSESSMENT 1.............................................................................................................................3
PART 1............................................................................................................................................3
Decision makers and their need for accounting information..................................................3
Advantage and Disadvantage of recording accounting information......................................4
PART 2............................................................................................................................................4
Journal entries with narration for the David wises.................................................................4
PART 3............................................................................................................................................5
Ledger and trail balance of Pearce & sons:...........................................................................5
PART 4 ...........................................................................................................................................7
Income statement for Airman co............................................................................................7
Impact of COVID 19 on company income statement items...................................................7
ASSESSMENT 2.............................................................................................................................8
PART A...........................................................................................................................................8
Journal transaction of T- accounts..........................................................................................8
Balance the accounts and an opening balances......................................................................9
Trial balance.........................................................................................................................12
Income statement for the period 31 Oct. 2020.....................................................................13
Preparation of financial position 31 Oct. 2020.....................................................................13
PART B..........................................................................................................................................13
Ratio calculation for Linda's business..................................................................................13
Analysis of ratio analysis in comparison to it's competitors ...............................................14
CONCLUSION..............................................................................................................................15
REFERENCES .............................................................................................................................16

INTRODUCTION
A business transaction is referred to as day to day activities done in a business firm which
includes transfer of money, goods as well as services between two or more then two parties.
These transactions are measured in money and are been recorded for maintaining transparency of
the business firm. Management of sound business firm records and displays its report of financial
activities of the organisation (Prodanova and et. al., 2019).
ASSESSMENT 1
PART 1
Decision makers and their need for accounting information
Accounting plays an important role in enhancing effectiveness of a business firm. It
allows its managers and leaders to take respective decisions in various operational activities of
the business firm. Financial accounting is an element of accounting which forms basics of
operational activities of the business enterprise (Drake, Quinn and Thornock, 2017). Under
standard guidelines of accounting systems, transactions of business firms are been recorded,
summarized and then are presented in financial statements such as P&L account, balance sheet
of the company and many more. There are so many ways to prepare financial statements of
respective companies. However to provide comparative and competitive differences some
universal set of financial statements are been prepared (Dabbicco, 2018). It proves to be an
important tool for management of companies to make respective decisions by providing with
statical data in planning structure of firm. As competition plays crucial role in deciding up of
success or failures of firm's strategies and policies, financial statements provides reliable
information about facts and figures to perform better than their competitors and helps in boosting
up of net profits of an organisation.
Financial accounts displays all monetary information related to operational activities of
the workforce. Respective decision making of various firm's depends on information been
extracted from financial statements of company (Maroun, 2017). By distinctive preparation of
financial statements of a business firm, this enables firm's leaders and managers to make
effective strategies to give a string fight to company’s competitors.

Advantage and Disadvantage of recording accounting information
Accounting information refers to the data about various financial activities conducted by a
business organisation. Accounting information is used by individuals which are associated with
the organisation such as shareholders, managers and employees (Kwilinski, 2019). This data is
also accessed by individuals which are not associated with the company such as government
authorities, regulation agencies and news reporters.
Advantage of recording accounting information
1) Formulation of financial report:
Keeping detailed record of various accounting information allows corporations to formulate
precise and accurate financial reports. Such financial reports give the organisation insight about
their net earnings and overall expenditures of the company.
2) Comparing previous data: Recording financial information in a detailed and precise manner
allows corporations to compare current financial position of the company with financial situation
of past year. This helps the company evaluate their growth and effect of policy changes on
financial situation of the organization.
3) Improves decision making: Another advantage of recording accounting information is that it
helps organizations improve their decision making process by giving them detailed insight about
their current and past financial conditions.
Disadvantages of recording financial information:
1) Inability to express non-financial transactions: Recording accounting information is limited to
expressing each business transaction as the monetary value it denotes. This excludes important
information which cannot be defined by monetary terms.
2) Misuse of data: Accounting information can be easily manipulated and controlled to showcase
incorrect financial position of the company (International Labour Organisation, 2020). By
controlling such information cheaters and criminals can easily defraud the corporation.
3) Involvement Personal Bias: Records of accounting information are not protected from
personal bias, prejudiced opinions and errors of employees. This increases inaccuracy of such
records and effectiveness of decisions formed on the basis of such records.

PART 2
Journal entries with narration for the David wises
Journal Entries
S. NO Date Particulars L.F £ £
1 01/02/20 purchase return A/C Dr. 350
To Purchase A/c 350
( Being purchase return with full
settlement)
2 04/02/20 Bad debts A/c Dr. 85
To S. keys A/c 85
(being debt debt written off by S.
keys)
3 09/02/20 Machinery A/c DR. 2300.00
To Bank 200.00
To TS CO. 2100
( Being machinery purchase with
cash Rs. 200 and 2100 on credit)
4 13/02/20 Cash account 220
Bad debts A/c 50
To S. hill Ltd. 270
( money owed by S. hill 270 and
paid only 220, Rs. 50 declare as
bad debts)
5 20/02/20 Drawing A/s Dr. 180
To Stock 180

6 26/02/20 Insurance A/c Dr. 85
To Cash A/c 85
( Business paid money for
private house insurance)
7 28/02/20
Machinery A/c
DR. 1050
To bank A/c 1050
(amount paid by TS CO. for half
amount credit on machinery)
Total 4320 4320
PART 3
Ledger and trail balance of Pearce & sons:
A. General ledger
Ledger Accounts
(Amounts in GBP)
Capital Account
Date Particulars Amt. Date Particulars Amt.
01/02/20 By Bank A/c 21500
01/02/20 By Van A/c 25000
01/02/20 By Office Fixture A/c 800
29/02/20 To Balance c/f 47300
Total 47300 Total 47300
Bank Account
Date Particulars Amt. Date Particulars Amt.

03/02/20 By Cash A/c 1500 01/02/20 To Capital A/c 21500
04/02/20 By Van A/c 4800 02/02/20 To Loan A/c 2500
19/02/20 By Nissan Co. A/c 5200 25/02/20 To Cash A/c 350
28/02/20 By Office Fixture A/c 620
29/02/20 By Balance c/f 12230
Total 24350 Total 24350
Van Account
Date Particulars Amt. Date ParticularsAmt. Amt.
01/02/20 To Capital A/c 25000
04/02/20 To Bank A/c 4800
08/02/20 To Nissan Co. A/c 5200
29/02/20 By Balance c/f 35000
Total 35000 Total 35000
Quick Office Ltd Account
Date Particulars Amt. Date Particulars Amt.
05/02/20 By Office Fixture A/c 1100
29/02/20 To Balance c/f 1100
Total 1100 Total 1100
Cash Account
Date Particulars Amt. Date Particulars Amt.
15/02/20 By Office Fixture A/c 70 03/02/20 To Bank A/c 1500
25/02/20 By Bank A/c 350
29/02/20 By Balance c/f 1080
Total 1500 Total 1500
Nissan Co. Account

Date Particulars Amt. Amt. Date Particulars Amt.
08/02/20 By Van A/c 5200 19/02/20 To Bank A/c 5200
Total 5200 Total 5200
Office Fixture Account
Date Particulars Amt. Date Particulars Amt.
01/02/20 To Capital A/c 800
05/02/20 To Quick Office Ltd A/c 1100
15/02/20 To Cash A/c 70
28/02/20 To Bank A/c 620
29/02/20 By Balance c/f 2590
Total 2590 Total 2590
Loan Account
Date Particulars Amt. Date Particulars Amt.
02/02/20 By Bank A/c 2500
29/02/20 By Balance c/f 2500
Total 2500 Total 2500
Trial Balance
(in the month ending 29/02/2020)
(Amounts in GBP)
Particulars Debit Credit
Capital Account 47300
Bank Account 12230
Cash Account 1080
Van Account 35000

Quick Office Ltd. Account 1100
Office Fixture Account 2590
Loan Account 2500
Total 50900 50900
PART 4
Income statement for Airman co.
Income statement in the year end 30th Sept. 2020
Profit & Loss Account
(In the year ending 30th Sept 20)
Particulars Amount Particulars Amount
Opening Stock 36000 Sales 80000
Purchases 150000 Less: Returns Inwards -2000 78000
Less: Returns Outwards -600 149400 Closing Stock 120000
Carriage Inwards 720
Gross Profit c/f 11880
Total 198000 Total 198000
Carriage Outwards 400 Gross Profit c/d 11880
Motor Expenses 1200
Rent 5000
Telephone Charges 620
Wages and Salaries 32000
Insurance 830
Office Expenses 600
Sundry Expenses 300
Net profit / (loss) -29070
Total 11880 Total 11880

Impact of COVID 19 on company income statement items
Income statement is part of the financial statements of the organisation and depicts total revenue
collected and expenses incurred by the company in particular time period. The main objective of
this statement is to calculate total losses suffered or profit obtained by the company in a given
time period. Income statement of the company has faced various changes as businesses from all
over the globe are facing threat from COVID-19 pandemic.
The pandemic stopped business activities all over the globe which obstructed various
organisations from co ducting their daily operations. This resulted in various organisations
suffering huge losses. This impacted the process of revenue recognition for various enterprises.
Many organisations provided detailed description about effect of COVID-19 on their quarterly
financial statements. This pandemic has influenced credit losses and future prediction of cash
flow. As such information is used in impairment testing, this area of income statement is
influenced by the economic collapse caused by COVID-19.
Various organisations are using fair value measurement for conducting impairment
measurements (Flower and Ebbers, 2018). This process involves identification of price at which
usual transaction would take place between various business organisations under market
situation during the time of measurement.
The pandemic resulted in termination of various business activities between different
organisations. Sudden cloning of such business dealings increased costs of the company in the
form of fines paid for such termination (Weygandt and et. al., 2018). Such onetime costs need to
be recognized by various organisations and considered during formation of financial statements
in order to gain accurate insight about the current financial conditions of the company.
Taking each factor produced by pandemic into consideration during creation of income statement
will help the company take effective decisions about their strategies for the future.

CONCLUSION
From the above report it can be concluded that recording of business transaction of
business firm plays an important role in firm's decision making. It helps management of business
organisation to grab important opportunities which helps its management to overcome fear of
competition. My maintaining proper financial statements a management of a firm is able to make
effective decisions towards company’s success in respective business operations.

REFERENCES
Books and Journals
Prodanova, N.A. and et. al., 2019. Methodology for assessing control in the formation of
financial statements of a consolidated business. International Journal of Recent
Technology and Engineering, 8(1), pp.2696-2702.
Drake, M. S., Quinn, P. J. and Thornock, J. R., 2017. Who uses financial statements. A
demographic analysis of financial statement downloads from EDGAR. Accounting
Horizons, 31(3), pp.55-68.
Dabbicco, G., 2018. A comparison of debt measures in fiscal statistics and public sector financial
statements. Public Money & Management, 38(7), pp.511-518.
Maroun, W., 2017. Assuring the integrated report: Insights and recommendations from auditors
and preparers. The British Accounting Review, 49(3), pp.329-346.
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
Weygandt, J.J. and et. al., 2018. Managerial Accounting: Tools for Business Decision-making.
John Wiley & Sons.
Kwilinski, A., 2019. Implementation of blockchain technology in accounting sphere. Academy
of Accounting and Financial Studies Journal, 23, pp.1-6.
Jasmine, C. A., 2019. Impacts of Covid-19 on Company and Efforts to Support Organization
Adaptable. Dr. David F. Rico, PMP, ACP, CSM, pp.67-70.
International Labour Organisation, 2020. COVID‐19 and the World of Work: Country Policy
Responses.