Accounting of Business Transactions (Cai 2019)

Recording Business Transactions Contents Introduction 3 Assessment 1 3 Part 1 3 Part 2 5 Part 3 6 Part 4 10 ASSESSEMENT 2 12 PART A 12 PART B 20 CONCLUSION 23 References 24 Introduction Accounting includes monitoring, categorizing, updating and outlining the cash transactions of the person (Cai, 2019). These documents and the reports derived from them provide the basis for the analysis of the financial statements and the position of the company. Decision-makers and need for accounting information Financial accounting includes the summaries and

Recording Business Transactions

Contents
Introduction.................................................................................................................................................3
Assessment 1...............................................................................................................................................3
Part 1.......................................................................................................................................................3
Part 2.......................................................................................................................................................5
Part 3.......................................................................................................................................................6
Part 4.....................................................................................................................................................10
ASSESSEMENT 2................................................................................................................................12
PART A.................................................................................................................................................12
PART B.................................................................................................................................................20
CONCLUSION.............................................................................................................................................23
References.................................................................................................................................................24

Introduction
Accounting includes monitoring, categorizing, updating and outlining the cash transactions of
the person (Cai, 2019). These documents and the reports derived from them provide the basis for
the analysis of the financial statements and the position of the company. This review concerns
the processing of financial records by the different agencies and the production of trial reports
and income statements. Costs and drawbacks in the taxation of manufacturing firms are
discussed. The impact of Covid-19 on business profits is also addressed.
Assessment 1
Part 1
A. Decision-makers and need for accounting information
Financial accounting includes the summaries and analysis of all numerical facts in such a manner
that it can be reported in the report. These findings are very helpful for smart decision. Effective
judgments from purchase to customer service decide the future of the company (Viriyasitavat
and Hoonsopon, 2019). Both decisions about the induction and dismissal of workers, the
establishment of the profit goal, the planning of news events and budgets, the use of technology
for various manufacturing operations, etc. are taken by the corporation's multiple executives. The
decision-making authority of a company is based on its control processes, governed by the
Executive Committee or the Board members. For example, the Uber Executive board, headed by
its CEO, Dara Khosrowshahi, is responsible for all the strategic vision of the business. Firm
keeps a corporate structure that takes its decisions on behalf of the ideals, mission, beliefs and
goals of the organization. These activities are then delegated to the departmental supervisors,
along with the authority required for implementing them forward.
Financial accounts have the applicable company information in objective terms, making it easy
for management and investors to make rational decisions. Accounting statements shall be drawn
up in line with general systems and policies which are consistent across the industry (Hamilton,
2020). This makes them similar to several other competitors who know their business status
through business metrics. Financial accounts also provide a basis for administrators to take
decisions on investment proposals or whether or not they will be viable and economically
sustainable. Predictions and assumptions also rely on corporate accounting information improved

under current trading environments. Financial data is not only important, since it promotes
comparison in and of itself but also constitutes the foundation for the extraction of useful
information from non-financial details.
B. Advantages and disadvantages of accounting for a business
Accounting monitors and reviews the financial reports of a major company on the grounds of the
essence of the regulation. Benefits and risks related to the handling of financial records are as
shown in:
Advantages:
 Decision-making - The executive committee wants statistics and business decision-
making. Account books have a role to play in the company (Zhang, Wang and Zhu,
2019). It includes information on cash reserves in the business as well as other
expenditures and revenues, making it easier to predict financial surpluses or losses in a
timely way. It also serves to establish supervision and accountability, which helps to
prevent and detect fraud. Evidence in legal matters - Account books function as a corporate background for the
substantial financial operation recorded within. It shall then serve as legal evidence in the
courts if any dispute exists. Entities shall maintain documents in the manner specified in
the Act and submit it to the Registrar after they've been audited by an external
investigator.
Disadvantages:
 Records only financial aspects - One of the most significant disadvantages to financial
statements is that it refers only to the accounting of transfers of a financial kind. Various
sub-considerations, like consumer conditions, political environment, legal and regulatory
rules, etc., have significant implications for business practices. They are not recorded in
financial accounts and have an erroneous picture when making smarter business
decisions.

 Historical nature - Amounts are listed in individual spending accounts and price shifts
are not taken into consideration. This helps financial documents of historical value in the
books of accounts (Mola, Microsoft Technology Licensing LLC, 2019). These
documents are then regarded as a prerequisite for predicting future outcomes. It loses the
period value of resources and the changes that come with that as well; making projections
dependent on historical costs do not necessarily have the best basis for predicting events
in the future.
Part 2
A. Journal Entries for the month of February 2020
Date Particulars Debit (£) Credit (£)
01/02/20 Asma Ltd. A/c..........................Dr.
To Office fixtures A/c
(Unsuitable office fixtures returned to Asma
Ltd.)
350
350
04/02/20 Bad debt A/c............................Dr.
To S. Keyes
(Debt from S.Keyes written off as bad)
85
85
09/02/20 Machinery A/c.........................Dr.
To Bank A/c
To TS Co. A/c
(Machinery bought from TS Co. on part cash
and part credit)
2300
200
2100
13/02/20 Bank A/c...................................Dr.
Bad debt A/c.............................Dr.
To S. Hill A/c
(Only £220 received out of £270 from
bankrupt debtor S. Hill as full and final
settlement)
220
50
270

20/02/20 Drawings A/c............................Dr.
To Purchases A/c
(Goods taken for personal use by owner)
180
180
26/02/20 Drawings A/c..........................Dr.
To Insurance A/c
(Personal insurance bill debited to business
not stands corrected)
85
85
28/02/20 TS Co. A/c..............................Dr.
To Bank A/c
(Half payment of machine credit paid by
owner to TS Co)
1050
1050
Part 3
A. General ledger
Ledger Accounts
(Amounts in GBP)
Capital Account
Date Particulars Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
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 Amount Date Particulars Amount
02/02/20 By Bank A/c 2500
29/02/20 By Balance c/f 2500
Total 2500 Total 2500
B. Trial Balance as at 28th Feb 2019
Trial Balance
(at 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
A. Income Statement for the year ending 30th Sept 2019
Profit and Loss Account
(for 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
B. Possible impact of Covid-19 on Income statements
Businesses require a stable fiscal, cultural and legal environment to succeed. Instability in the
business environment can result in a decrease in competitiveness and even a loss of sales
between firms, as seen in the case of Aiman Co., which has been profitable for the last 10 years
and recorded a decline this year.
This should be recalled that the implications for Aiman Co. triggered by Covid-19 will be
confined in the first two quarters, i.e. from September 2019 to March 2020, owing to the short
period between the said financial quarter and the emergence of an outbreak. There had been a
major negative impact on production, supply chain and sales after March owing to the lock-

down. Owing to the disruption in the production process, the amount and time needed for inward
and outward freight increased and income declined due to lower demand, while running
expenses had to be paid accordingly (Aladejebi and Oladimeji, 2019). This has seen the impact
on operating results, and Aiman Co. may have announced a failure due to this fiscal year. The
circumstances of the lock-down of Covid-19 are unique and peculiar. It is not possible to
determine how long the impact would are and how far the economic conditions for the business
would've been. Nor is it reasonable to associate the results of the last year at the trends of the last
ten years. Besides that, it can be assumed to have a bearing on the outcome of the next fiscal
year.
ASSESSEMENT 2
PART A
(a) Journal entries
Dates Particulars/details Dr. Cr.
1/10/2020 Bank a/c DR
Cash a/c DR
Van a/c DR
To Capital a/c
(Being capital fund invested in business)
8000
5200
3000
16200
2/10/2020 Laptop a/c DR
To bank a/c
(Being Laptop for business bought on
credit)
1000
1000
4/10/2020 Purchase a/c DR
To Toys limited
(Being Toys purchased on credit)
2450
2450
5/10/2020 Bank a/c DR
To sales a/c
(Being goods sold)
1500
1500
12/10/2020 Repairing laptop a/c DR 80

To cash a/c
(Being amount paid for repairing laptop)
80
18/10/2020 Toys limited a/c DR
To purchase return a/c
(Being goods returned to Toys limited)
100
100
21/10/2020 Bank a/c DR
To rent a/c
(Being rent paid)
500
500
23/09/2020 Cash a/c DR
Fred a/c DR
To sales a/c
(Being goods sold on cash and credit)
1500
400
1900
23/10/2020 Cash a/c DR
To sales a/c
(Being goods sold)
500
500
24/09/2020 Car a/c DR
To bank a/c
(Being car purchased)
2500
2500
26/10/2020 Wages a/c DR
To bank a/c
(Being wages paid)
820
820
31/10/2020 Rent a/c DR
To bank a/c
(Being rent paid)
1000
1000
30/09/2020 Drawings a/c DR
To bank a/c
(Amount withdraw from bank for holiday)
1600
1600
(b) Balance the accounts and bring down an opening balance
Bank a/c

Date Particulars Amount Date Particulars Amount
1/10/2020 To capital a/c 8000 2/10/2020 By Laptop a/c 1000
5/10/2020 To sales a/c 1500 24/09/2020 By Car a/c 2500
21/10/202
0
To rent a/c 500 26/10/2020 By Wages a/c 820
31/10/2020 By Rent a/c 1000
30/09/2020 By Drawings a/c 1600
31/10/2020 By balance c/d 3080
Cash a/c
Date Particulars Amount Date Particulars Amount
1/10/2020 To capital a/c 5200 12/10/2020 By Repairing
laptop, a/c
80
23/09/202
0
To sales a/c 1500 31/10/2020 By balance c/d 7120
23/10/202
0
To sales a/c 500
Van a/c
Date Particulars Amount Date Particulars Amount
1/10/202
0
To capital a/c 3000 31/10/202
0
By balance c/d 3000
Capital a/c
Date Particulars Amount Date Particulars Amount
31/10/202
0
To balance c/d 16200 1/10/202
0
By bank a/c 8000
1/10/202 By Cash a/c 5200

0
1/10/202
0
By Van a/c 3000
Laptop a/c
Date Particulars Amount Date Particulars Amount
2/10/202
0
To bank a/c 1000 31/10/202
0
By balance c/d 1000
Purchase a/c
Date Particulars Amount Date Particulars Amount
4/10/202
0
To Toys limited 2450 31/10/202
0
By balance c/d 2450
Toys limited
Date Particulars Amount Date Particulars Amount
18/10/202
0
To purchase return
a/c
100 4/10/202
0
By Purchase a/c 2450
31/10/202
0
To balance c/d 2350
Sales a/c
Date Particulars Amount Date Particulars Amount
31/10/202
0
To balance c/d 3900 05/10/2020 By Bank a/c 1500
23/09/2020 By cash a/c 1500
23/09/2020 By Fred a/c 400

23/10/2020 By Cash a/c 500
Repairing laptop a/c
Date Particulars Amount Date Particulars Amount
12/10/202
0
To cash a/c 80 31/10/2020 By balance c/d 80
Purchase return a/c
Date Particulars Amount Date Particulars Amount
31/10/202
0
To balance c/d 100 18/10/2020 By Toys limited
a/c
100
Rent a/c
Date Particulars Amount Date Particulars Amount
31/10/202
0
To bank a/c 1000 21/10/2020 By Bank a/c 500
31/10/2020 By balance c/d 500
Fred a/c
Date Particulars Amount Date Particulars Amount
23/09/202
0
To sales a/c 400 31/10/2020 By balance c/d 400
Car a/c
Date Particulars Amount Date Particulars Amount
26/09/202 To bank a/c 2500 31/10/2020 By balance c/d 2500

0
Wages a/c
Date Particulars Amount Date Particulars Amount
26/10/202
0
To bank a/c 820 31/10/2020 By balance c/d 820
Drawings a/c
Date Particulars Amount Date Particulars Amount
30/09/202
0
To bank a/c 1600 31/10/2020 By balance c/d 1600
(c) Trial balance:
Particulars DR CR
Bank a/c 3080
Cash a/c 7120
Van a/c 3000
Capital a/c 16200
Laptop a/c 1000
Purchase a/c 2450
Toys limited a/c 2350
Sales a/c 3900
Repairing laptop a/c 80
Purchase return a/c 100
Rent a/c 500
Fred a/c 400
Car a/c 2500
Wages a/c 820

Drawings a/c 1600
22550 22550
(d) Income statement:
Particulars Amount
Sales 3900
Less: cost of goods sold
Opening stock 0
Purchases 2450
Less: Purchase return 100
Less: Closing stock 250
Gross profit 1800
Less: Operating expenses
Laptop repairing 80
Wages 820
Rent 1000
Add: Operating income
Rent received 500
Net Profit 400
(e) Statement of financial position
Assets
Fixed Assets
Laptop 1000
Second-hand car 2500
Van 3000
Current Assets

Bank 3080
Cash 7120
Fred 400
Inventory 250
Total Assets 17350
Equity and Liabilities
Equity
Capital 16200
Less: Drawings -1600
Retained earnings 400
Current liabilities
Toys Ltd. 2350
Total equity and Liabilities 17350
(f) Drawings from small business owner would have to be reported in balance sheet as decrease
in assets in business as well as reduction in capital of owner and accounting report has to be kept
in order to trace the money appropriated from business by owners. An account shall be formed
in balance sheet to document purchases carried out in lieu of money withdrawn from the
organization by owners. It is referred to as drawing account. The sum deducted by owner is
reported as a deduction in drawing account. When goods are withdrawn, sum recorded shall be
at cost value of goods. Drawings describes act of extracting cash or money from the organization
from owner(s) for private use (Harvey, McLaney and Atrill, 2013). Drawings may arise when
removing funds from business account, but may also contain something it is called a business
asset, like merchandise that is withdrawn from business for personal usage by owners. Any form
of drawing lowers the money or capital of owner of company, so it is necessary to maintain track
of such drawings and control them in accounts. Conversely, drawings aren't known to be a
company expenditure. Further Linda’s payment of 1600 from business bank account for week-
long holiday in the Florida seems his personal expense thus should be recognized as drawing. In
case if such expense is for business meeting in Florida then it should be recognized as business

expense there for recognition of a payment as business expense or drawing depends upon its
main purpose whether personal or business.
PART B
Net profit margin Net profit/sales*100
Net profit 400
sales 3900
Net profit margin 10.26 %
Gross profit margin Gross profit/sales*100
Gross profit 1800
sales 3900
Gross profit margin 46.15%
Current ratio Current assets/current
liabilities
Current assets 10850
Current liabilities 2350
Current ratio 4.62 times
Acid test ratio Quick assets/current
liabilities
Quick assets 10600
current liabilities 2350
Acid test ratio 4.51 times

Accounts receivable collection period Sales/accounts receivables
sales 3900
accounts receivable 400
Accounts receivable collection period 9.75
Days 37.44
Accounts payable turnover ratio Purchase/accounts payables
Purchase 2450
Accounts payable. 2350
Accounts payable turnover ratio 1.042553191
days 350
(ii) Comparison of ratios:
Industry’s ratio Linda’s business ratio
Net profit margin 31% 10.26%
Analysis- Net profit ratio describes the actual profitability status of business as in this ratio net
profit is used which is a sum remain after providing all expenses. As stated in above table
Business’s net profit is just 10.26% while industry’s net margin ratio is 31% indicating that
company is unable to generate profitability enough to meet the industry’s average target (Berry
and Jarvis, 2013).
Industry’s ratio Linda’s business ratio
Gross profit margin 54% 46.15%
Analysis- Gross profit is sum of profit generated form core business operations. Gross-profit
ratio of sector is 54% while business’s GP ratio 46.15% which is below the industry benchmark.