Recording Business Transactions: Advantages, Disadvantages, and Financial Statements

This document discusses the recording of business transactions, including the advantages and disadvantages of accounting. It covers the decision makers of accounting information, such as internal and external users. The document also includes journal entries and the preparation of financial statements, such as income statements. Additionally, it explores the possible impact of COVID-19 on company income statement items.

RECORDING BUSINESS
TRANSACTIONS

TABLE OF CONTENT
INTRODUCTION................................................................................................................3
PART 1.................................................................................................................................3
(a) Decision makers of accounting information..............................................................3
(b) Advantages and disadvantages of accounting............................................................4
PART 2.................................................................................................................................6
Journal entries..................................................................................................................6
PART 3.................................................................................................................................7
(a) Journal and Ledger of Pearce & Sons........................................................................7
(b) Trial balance as at 28 Feb 2020...............................................................................11
PART 4...............................................................................................................................11
(a) Income Statement for Airman Co. for the year ending 30th September 2020.........11
(b) Possible impact of COVID-19 on company Income statement items.....................12
CONCLUSION..................................................................................................................13
REFERENCES...................................................................................................................14

INTRODUCTION
Recording business transaction is defined as recording of all the transaction in
financial nature and then posting them in ledger to calculate profit or loss incurred during
a financial year. The project shall be highlighting the financial statements of the business
that is required by the users of the information for the purpose of decision-making
(Faccia, 2020). The internal as well as the external users of the accounting information
requires the data to ascertain profitability, growth prospects and credibility of the
company. It shall be reflecting the advantages and the disadvantages that are faced by the
accountants in recording such financial data.
Apart from that it shall include the recording of the business transactions in the
journal, posting in the ledger and the closing balances are then accumulated in the trial
balance. The project report shall be demonstrating the income statement of the company
and representing the profitability position of the company by incorporating all the
expenses and incomes of the business. Lastly it shall be showing the impacts of the
pandemic on the business and the simultaneous effect on its profitability.
PART 1
(a) Decision makers of accounting information
Internal and External users are the decision makers of the financial statement.
Internal users are the person who are inside the organisation while external are outside the
organisations
Internal users:
 Owners- owners need financial information for making decisions on what to do
with their investment i.e. buy, hold, or sale the securities. The Sainsbury
company’s shareholders invest in the company by seeing continue growth and
profitability of the firm. Higher the profit higher the dividend paid to them.
 MANAGEMENT- in small businesses sometimes there are management may
include owners. The management of the company is the first and foremost user of
the financial statements, they are the ones who prepared the financial statements.
Board and the management need to refer to them while considering the progress
and growth of the company.

 EMPLOYEES- from financial statements employees need to know about the
status of bonus and increments if company earn more profit it gives more bonus to
the employees.
 INVESTORS- investors are the owner of the business; Sainsbury's investors want
to know about the financial performance of the company so they make decisions
on the basis of financial statements
External Users:
 CUSTOMERS- customers of the Salisbury's need to read the financial statements
of the company through which they are procuring goods or services and also
financially strong company can provide its customers with credit sales or sale
goods at discount to its long-term customers.
 COMPETITORS- this are the person who would like to maintain the competitive
advantages On their competitors. Sainsbury's competitors are Tesco, Aldi UK,
Morrisons etc. The company changes their strategy by looking financial
statements of competitors for future growth.
 GOVERNMENT- government agencies like the income tax department and the
sales department would like to know about the company's financial statements to
keep a check if the company is paying appropriate taxes on time or not. So
Government uses financial statement of the companies for finding out net profit
before tax.
(b) Advantages and disadvantages of accounting
Advantages:
 Maintain Business Records: accounting helps in maintain business transactions
which are recorded at one place in chronological record so easy to find (Warren,
Jonick, and Schneider, 2020). while recording the transaction in the journal each
debit aspects needs a credit aspect, this will assist to easily find out financially
affected transactions.
 Helps to Find out Financial Position: proper accounting records helps to find
out the profit and loss for the year end which shows financial performance of the
firms. balance sheets as on date shows financial position of the firms

 Recording acts as a backup at the time of Audit: good recording of the
transactions helps the tax auditors to easily make decisions. At the time of
auditing actual recording of income and expenses required, so without right
records, industries standards used as a guidance
Disadvantages:
 Inconvenience: for recording financial transactions the complete knowledge of
accounting is required. sometimes the transactions may have more than two
effects so it is necessary to record all the effects so the recording is proper taken
place.
 Time Consuming: Recording every business transaction may take time because
they need debit and credit both aspects at a same time. If any error occurs, then
accountant has to done the entries again.
 Accuracy: Sometimes a bookkeeper can make a typing mistakes that can affect
the accuracy of the financial records and that mistakes are only found when the
financial reconciliation process will have done (Berry, 2018.). So it is the great
disadvantage of the recording transaction.
Advantages of sole proprietary business: Recording of transaction is simple and
affordable for sole proprietorship. It helps the owner in simplifying the tax regimes. Only
one person can record all accounting records so, it is beneficial for maintaining
confidentiality. This firm does not need to publish its accounts on public domain.
Disadvantages of sole Proprietary: In this type of firms there is unlimited liability and
lack of financial control so it is the main disadvantage of sole firms. In the case of sole
proprietary form of business does not have a report on financial statements so the
proprietor may not properly know where the business funds are going.
Advantages of partnership Business: If there is more than one partner than its helps in
specialization of two or more than multiple skills. If more Than one person introduced
capital, then it helps in expansion and growth
Disadvantages of Partnership Firms: in partnership there is loss of autonomy and lack
of stability.

PART 2
Journal entries
Date Particular Debit( £) Credit( £)
01/02/20 Cash A/c Dr
To Office Fixture A/c
( Being office furniture returned to Asma Ltd)
350
350
04/02/20 Bad debts A/c Dr
To S. Keys A/c
(Being bad debts written off)
85
85
09/02/20 Machinery A/c Dr
To Bank A/c
To TS Co.
(Being machine purchase and 200 paid in cheque
and left on credit )
2300
200
2100
13/02/02 Cash A/c Dr
Bad Debts A/c Dr
To S. Hill A/c
(Being S hills full and final settlement done)
220
50
270
13/02/20 Profit and loss A/c Dr
To Bad Debts A/c
(Being Bad debts transferred in profit and loss
account)
50
50
20/02/20 Drawing A/c Dr
To Inventory A/c
(Being Owner takes goods for his personal use)
180
180
26/02/20 Drawing A/c Dr
Insurance(Cash) A/c
(Being Private insurance is treated as Business
85
85

expenses )
28/02/20 TS Co. A/c Dr
To Bank A/c
1100
1100
PART 3
(a) Journal and Ledger of Pearce & Sons
Date Particular Debit(£) Credit(£)
01/02/20 Bank A/c Dr
Van A/c Dr
Office Fixtures A/c Dr
To Capital A/c
21500
25000
800
47300
02/02/20 Bank A/c Dr
To Loan A/c (Received from Lloyds Bank)
(Being loan taken from Lloyds Bank )
2500
2500
03/02/20 Cash in Hand A/c Dr
To Bank A/c
(Being bank Account transferred in cash in hand
Account )
1500
1500
04/02/20 Van A/c Dr
To Bank A/c
(Being Van Purchased through Cheque)
4800
4800
05/02/20 Office Fixture A/c Dr
To Quick Office Ltd A/c
(Being office furniture Purchased on credit)
1100
1100
08/02/20 Van A/c Dr
To Nissan Co. A/c
(Being Van purchased on credit from Nissan
company)
5200
5200

15/02/20 Office Fixture A/c Dr
To Cash A/c
(Being Fixture purchase on cash)
70
70
19/02/20 Nissan Co. A/c Dr
To Bank A/c
(Being paid amount to Nissan co. through
cheque )
5200
5200
25/02/20 Bank A/c Dr
To Cash in Hand A/c
(Being cash in hand transfer to bank A/c)
350
350
28/02/20 Office Fixture A/c Dr
To Bank A/c
(being office fixture purchase and paid in cheque)
620
620
Ledger Accounts:
Bank A/c
Date particular Amount Date Particular Amount
01/02/20 To Capital a/c 21500 03/02/20 By cash in hand A/c 1500
02/02/20 To Loan A/c 2500 04/02/20 By van a/c 4800
25/02/20 To cash in hand a/c 350 19/02/20 By Nissan Co. A/c 5200
28/02/20 By Office fixture A/c 620
01/03/20 by Balance C/d 12230
24350 24350
01/03/20 To balance B/d 12230
Van A/c

Date particular Amount Date Particular Amount
01/02/20 To Capital a/c 25000 01/03/20 By balance C/d 35000
04/02/20 To Bank A/c 4800
08/02/20 To Nissan co. a/c 5200
35000 35000
01/03/20 To balance B/d 35000
Office fixture A/c
Date particular Amount Date Particular Amount
01/02/20 To Capital a/c 800 28/02/20 By balance C/d 2590
05/02/20 To Quick fixture A/c 1100
15/02/20 To cash A/c 70
28/02/20 To bank a/c 620
2590 2590
01/03/20 To balance b/d 2590
capital A/c
Date particular Amount Date Particular Amount
28/02/20 To Balance C/d 47300 01/02/20 By bank a/c 21500
01/02/20 By van a/c 25000
01/02/20 By Office Fix. A/c 800
47300 47300
01/03/20 By balance B/d 47300

Loan a/c
Date particular Amount Date Particular Amount
28/02/20 To Balance C/d 2500 02/02/20 By bank A/c 2500
2500 2500
01/03/20 By balance B/d 2500
Cash in Hand A/c
Date particular Amount Date Particular Amount
03/02/20 To bank A/c 1500 15/02/20 By office fixture A/c 70
25/02/20 By bank A/c 350
28/02/20 By Balance C/d 1080
1500 1500
01/03/20 To balance B/d 1080
Quick Office Ltd A/c
Date particular Amount Date Particular Amount
28/02/20 To balance C/d 1100 05/02/20 By Office Fixture A/c 1100
1100 1100
01/03/20 By Balance B/d 1100
Nissan Co. A/c

Date particular Amount Date Particular Amount
19/02/20 To Bank a/c 5200 08/02/20 By Van a/c 5200
5200 5200
(b) Trial balance as at 28 Feb 2020
Particular Debit credit
Bank A/c 12230
van A/c 35000
Office Fixtures A/c 2590
Capital a/c 47300
Loan A/c 2500
Cash in Hand A/c 1080
Quick Office Ltd A/c 1100
Total 50900 50900
PART 4
(a) Income Statement for Airman Co. for the year ending 30th September 2020
Particular Amount
sales 80000
- sales return 2000
Net sales 78000
- Cogs 64680
Gross profit 11880
Operating Expenses

carriage outward 400
motor Expenses 1200
rent 5000
Telephone charges 620
Wages and salaries 32000
Insurance 830
Office Expenses 600
sundry Expenses 300
Total Expenses 40950
Net Profit 29070
(b) Possible impact of COVID-19 on company Income statement items.
In First quarter of 2020 many companies facing most challenging time, while
mostly industries continued their moderate growth at the beginning of the year. In mid-
march COVID 19 pandemic obstruct every business in most parts of the world. Due to
COVID 19 it is identified that demand and supply of many firms affected negative and by
this sales starts declining (Sunray, Nawi, and Rahayu, 2017.). Provision on Debtors due to
sudden extension in tenure would be another question deals with. Cleaning and
Sanitisation costs incurred to prevent the spread of COVID 19 declines profit and this
cost is the permanent expense of the firms. Due to closure of production, Penalties for
delays or non-performance of contracts is the another reason of decreasing NP.
In the COVID situation government also provide subsidies to the business for
running smoothly in that situations. This will help the businesses to sustain in the market
because it will increase profit. Insurance recoveries from COVID 19 related claims also
support the Airman Co. for the future growth. This pandemic directly impacts on
Profitability, Liquidity, workforce, supply chain. Indirect impacts of COVID 19 was on
financial markets, prices of shares and debentures, idle capacity of employees, which

reduces the profit of the organisations. Estimating future cash flows could also be
challenging for Airman Co. due to Increases in economic uncertainty.
Hygiene is the another reason for change after the COVID pandemic customers
wants to use hygienic products and it incurred higher cost of production. After this
pandemic Airman Co. starts selling goods in Online market which escalate the cost of
technological advancement.
Rent, wages and other expenditure incurred during temporary closures which declines the
profit of Airman Company. COVID Impact on every part of the society which may
include either social, economic or geographical areas would take its own time and cost to
turn back to normal.
CONCLUSION
It can be summarized from the above project that financial statements prove to be
very essential for the business and the users of its information. It assists in the decision-
making process and shall evaluate the position of the company in respect of the
profitability and the future growth opportunities. There are certain advantages like it helps
in knowing the results and improve the inefficiencies whereas the disadvantages like time
consuming and less accurate. Also the business has been highly impacted in terms of the
profitability because of the outbreak of the covid-19.

REFERENCES
Books and Journals
Berry, L.E., 2018. Financial accounting demystified. McGraw-Hill,.
Faccia, A., 2020. X-Accounting®-Towards a new Accounting System. Blockchain
applied accounting. How robots will overcome humans in accounting Recording.
Fischer-Pauzenberger, C. and Schwaiger, W.S., 2017. The OntoREA Accounting Model:
Ontology-based Modeling of the Accounting Domain. CSIMQ, 11. pp.20-37.
Sunarya, P. A., Nawi, M. N. M. and Rahayu, S., 2017. Analyze and Record a series of
Purchase Transactions on Companies using Online Accounting Software. Aptisi
Transactions On Management, 1(1). pp.38-43.
Warren, C .S., Jonick, C. and Schneider, J., 2020. Accounting. Cengage Learning.
Webster, W., 2020. Accounting for managers.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E ., 2019. Financial accounting. John
Wiley & Sons.
Yu, T., Lin, Z. and Tang, Q., 2018. Blockchain: The introduction and its application in
financial accounting. Journal of Corporate Accounting & Finance, 29(4). pp.37-
47.