Recording Business Transactions: Journal Entries, Ledgers, Trial Balance, Income Statement, and Balance Sheet

This report covers the preparation of books of accounts including passing of journal entries, preparation of ledger accounts, trial balance, income statement and balance sheet of Anne, a sole trader carrying out furniture business. It also includes the impact of Covid 19 on the business and the calculation of accounting ratios.

RECORDING
BUSINESS
TRANSACTIONS

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Record the enterprise proceedings in the journal........................................................................3
Prepare general ledgers................................................................................................................5
Formulate the Trial Balance........................................................................................................9
Construct the Income Statement................................................................................................10
Provide details of the Balance Sheet.........................................................................................11
In case of Anne to Linda;...........................................................................................................12
TASK 2..........................................................................................................................................12
Determine the Accounting Ratios of the Business....................................................................12
Impact of Covid 19 on the business:..........................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business transaction is an economic transaction which is enter between two or more
persons involving interchange of goods, money and assets. Recording of these transaction is a
multi-step process starting from passing journal entry to finalisation of books of accounts (Al-
Jaroodi, and Mohamed, 2019). This report contains preparation of books of accounts including
passing of journal entries, preparation of ledger accounts, trial balance, income statement and
balance sheet of Anne, a sole trader carrying out furniture business. A brief letter is also
addressed to Anne explaining to her regarding drawings and addressing query with respect to
holidays. At the end certain ratios are calculated and interpreted taking into consideration
competitors figures and Covid 19 outbreak. These ratios conclude the efficiency and
performance of an enterprise over an accounting period.
TASK 1
Record the enterprise proceedings in the journal
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
800
200
1000

(Computer and printer being bought for cash)
05/10/21 Bank
Sales
(Goods worth 2800 being sold)
2800
2800
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 850

Bank
(a place being rented by the business and paid expenses
for same)
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
Prepare general 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
01/11/21 Balance b/d 8030
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
01/11/21 Balance b/d 7340
Flat Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 45000 31/10/21 Balance c/d 45000
45000 45000
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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

01/11/21 Balance b/d 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
01/11/21 Balance b/d 5150
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
01/11/21 Balance b/d 5150
Computer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 800 31/10/21 Balance c/d 800
800 800
01/11/21 Balance b/d 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

01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 50
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
01/11/21 Balance b/d 150
Sales Account
Date Particulars Ref Amount Date Particulars Ref Amount
05/10/21 Bank 2800
23/10/21 Rayan 300

31/10/21 Balance C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 5600
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 1200
Formulate the 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
Construct the Income Statement
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
Provide details of the Balance Sheet
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
In case of Anne to Linda;
Anne withdrew £1200 from the business, which was used by Anne for her personal
use(Drawings).
TASK 2
Determine the Accounting Ratios of the Business
 Net Profit Margin = (Net profit / Net Sales) * 100 = (- 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
It can be concluded from the above calculated ratios that the current ratio of the company
is remarkable as the ideal current ratio is 2. that means the paying capacity of the organisation is
2 times of its total current liabilities. This ratio of the business states that the company has 3
times paying capability as compared to its current liabilities. But as compared to their
competitors the company's current assets are low.
Impact of Covid 19 on the business:
It can be concluded from the above calculated ratios that the current ratio of the company
is remarkable as the ideal current ratio is 2. that means the paying capacity of the organisation is
2 times of its total current liabilities. This ratio of the business states that the company has 3
times paying capability as compared to its current liabilities (Block-Berlitz, Ducke, and
Erdenebat, 2021). But as compared to their competitors the company's current assets are low.
Covid has effected many businesses as their trading activities got disturbed and the sales is also
not up to the mark. Thus the business is not able to generate sales thus the overall profitability of
the business is affected due to pandemic. So, the business has to hunt for new business ideas to
increase their sales and also different marketing tools that can increase the sales of the firm.
CONCLUSION
From the above mentioned report it can be concluded that recording business transaction
is foremost thing in accounts. After recording the business transactions then they are posted to
the ledger. These ledger accounts help in determining the credit or debit balance of the accounts.
Then these balances are posted to the trial balance to check whether the debit side and credit side
of the trail balance matches as per accrual bases. Then finally these balances are transferred to
the final accounts and ratios are derived from them to ascertain the financial position os the
business on the basis of different parameters.

REFERENCES
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