Recording Business Transactions: Advantages, Disadvantages, and Financial Statements

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