Recording Business Transactions

This project report provides insight into recording business transactions and preparing financial statements for James. It includes journal entries, ledger balances, trial balance, profitability statement, and more. The report also analyzes the financial performance of James and provides recommendations for improvement.

Recording Business Transactions

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
a. Preparing journal for James referring given transactions........................................................1
b. Ledger balances.......................................................................................................................2
c. Trial balance for the year ended on 30th September 2019.......................................................6
d. Preparing profitability statement.............................................................................................7
e. Drafting statement of financial position for the year ended 30th September 2019...................7
PART-B...........................................................................................................................................8
1. Calculating ratios for James referring financial statements.....................................................8
2. Commenting on the financial performance of James............................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In the context of business organization, financial statement preparation is highly significant
which helps in analysing monetary performance effectually. This project report is based on the
case scenario of James who started new business. In this, report will provide deeper insight about
company’s final accounts and monetary performance via ratio analysis.
PART A
a. Preparing journal for James referring given transactions
James business
Journal
Date Particulars Debit (£) Credit (£)
01/09/19 Cash A/c Dr. 3200
Bank A/c Dr. 12000
Computer A/c Dr. 1000
To capital A/c 16200
02/09/19 Purchase A/c Dr. 900
To David A/c 900
03/09/19 Computer A/c Dr. 2000
To Bank A/c 2000
05/09/19 Bank A/c Dr. 500
To sales A/c 500
06/09/19 Purchase A/c Dr. 400
To cash A/c 400
10/09/19 Rent expense A/c Dr. 600
To cash A/c 600
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12/09/19 Repair expense A/c Dr. 100
To cash A/c 100
18/09/19 David A/c Dr. 100
To purchase return A/c 100
21/09/19 Bank A/c Dr. 300
To rent received A/c 300
23/09/19 Joseph A/c Dr. 400
To sales A/c 400
23/09/19 Cash A/c Dr. 1500
To sales A/c 1500
24/09/19 Car A/c Dr. 1000
To Bank A/c 1000
30/09/19
Wages expense A/c
Dr. 700
To cash A/c 700
30/09/19 Drawings A/c Dr. 450
To cash A/c 450
25150 25150
b. Ledger accounts
Cash A/c
Dr. Cr.
2

Date Particulars Amount (£) Date Particulars Amount (£)
01/09/19 To capital A/c 3200 06/09/19 By purchases 400
23/09/19 To sales A/c 1500 10/09/19
By rent
expense 600
12/09/19
By repair
expense 100
30/09/19
By wages
expense 700
30/09/19 BY Drawings 450
30/09/19 By balance c/d 2450
4700 4700
Bank A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
01/09/19 To capital A/c 12000 03/09/19 By computer 2000
05/09/19 To sales A/c 500 24/09/19 By car A/c 1000
30/09/19 By balance c/d 9500
12500 12500
Computer A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
01/09/19 To capital A/c 1000 30/09/19 By balance c/d 3000
03/09/19 To Bank A/c 2000
3000 3000
Capital A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
30/09/19 By balance c/d 16200 01/09/19 By bank 12000
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01/09/19 By cash 3200
01/09/19 By computer 1000
16200 16200
Purchase A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
02/09/19 To David 900 30/09/19 By balance c/d 1300
06/09/19 To cash 400
1300 1300
David A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
18/09/19
To purchase
return 100 02/09/19 By purchase 900
30/09/19 To balance c/d 800
900 900
Sales A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
30/09/19 To balance c/d 2400 05/09/19 By bank 500
23/09/19 By Joseph 400
23/09/19 By cash 1500
2400 2400
Rent A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
06/09/19 To bank 600 30/09/19 By balance c/d 600
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600 600
Repair A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
12/09/19 To cash 100 30/09/19 By balance c/d 100
100 100
Purchase return A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
30/09/19 To balance c/d 100 18/09/19 By David 100
100 100
Joseph A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
23/09/19 To sales 400 30/09/19 By balance c/d 400
400 400
Car A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
24/09/19 To bank 1000 30/09/19 By balance c/d 1000
1000 1000
Wages A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
30/09/19 To cash 700 30/09/19 By balance c/d 700
700 700
5

Drawings A/c
Dr. Cr.
Date Particulars Amount (£) Date Particulars Amount (£)
30/09/19 To cash 450 30/09/19 By balance c/d 450
450 450
c. Trial balance for the year ended on 30th September 2019
Trial Balance
Particulars
Debit side
Amount (in £)
Credit side
Amount (in £)
Bank 9200
Cash 3050
Computer 3000
Capital 16200
Purchase 1300
Sales 2400
Payables 800
Receivables 400
Rent 600
Repair 100
Purchase return 100
Rent received 300
Car 1000
Wages 700
Drawing 450
Total 19800 19800
d. Preparing profitability statement
Income statement for James pertaining to the year ended on 30th September 2019 is enumerated
below:
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Profit and loss statement
Particulars Amount Total
Sales 2400
Add: Other income (rent
received) 300
2700
less: COGS 950
Gross profit 1750
less: Operating expenses
Rent 600
repair 100
wages 700 1400
Net profit 350
Working note:
Particulars Amount
Opening stock 0
add: Net purchases 1200
less: closing inventory 250
COGS 950
e. Drafting statement of financial position for the year ended 30th September 2019
Balance sheet
Particulars Amount Total
Liabilities
Capital 16200
Add: profits 350
Less: Drawings 450 16100
7

Current liabilities
Payables 800
Total liabilities 16900
Assets
Fixed assets:
Computer 3000
Car 1000 4000
Current assets:
Cash 3050
Bank 9200
Closing stock 250
Receivables 400 12900
Total assets 16900
PART-B
1. Calculating ratios for James referring financial statements
Particulars Formula James Amount
Competitors
average
Gross profit (GP) 1550
Sales 2400
GP margin GP / sales * 100 64.58% 65.00%
8

Particulars Formula James Amount
Competitor
s average
Net profit 450
Revenue 2400
NP margin NP / sales * 100 18.75% 28.00%
Particulars Formula James Amount
Competitor
s average
9

Current asset (CA) 12900
Current liabilities (CL) 800
Current ratio CA / CL 16.13 2.1
Particulars Formula Amount
Competitor
s average
Current asset 12900
Stock 400
Quick assets (Current
asset-inventory) 12500
Current liabilities (CL) 800
Quick / acid test ratio Quick assets / CL 15.62 1.5
10

Particulars Formula Amount
Competitor
s average
Receivables 400
Revenue 2400
Receivable days
Average accounts
receivables/sales
revenue*365 60.83 47
Payables 800
Purchases 1300
Payables days
Average accounts
payable / purchases * 365 224.62 65
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2. Commenting on the financial performance of James
Outcome of ratio analysis clearly exhibits that GP and NP ratio of the firm was lower in
against to the benchmark. Further, in the concerned period, current and quick ratio accounts for
16.13 & 15.62 respectively which in turns too higher. As per the ideal framework current ratio of
the firm must be 2:1. On the other side, with regards to acid test ratio, company must have 1
quick assets that can easily be converted into cash in against to 2 current obligations.
Considering this, it can be stated that James maintained high liquidity which is not good for the
firm as it directly impacts profitability aspect. Moreover, in the case of high liquidity firm does
not made investment in other opportunity (Rodrigues and Rodrigues, 2018). In this way,
profitability is affected adversely when firm maintain more than enough cash. Thus, James
should lay focus on undertaking working capital management strategies which in turn help in
managing funds for day to day activities and thereby enhances profitability as well.
In addition to this, payable and receivable days imply for 225 & 61 days significantly. In
comparison to the rivals company was not performing we ll. The rationale behind this,
company’s position can said to be good when it receives payments from debtors early and do
payment to the suppliers later. However, as compared to the competitor firm is receiving
payment from debtors after 61 days. On the other side, competitor’s average imply for 47
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significantly. Thus, firm should focus on developing effectual credit policies that contributes in
organizational success.
CONCLUSION
By summing up this report, it can be concluded that James focuses on preparing final
accounts with the motive to summarize business transactions in a structured manner. Besides
this, it can be inferred that in against to the rival firm James financial position and performance is
not good. Thus, business unit needs to do significant modifications in the existing strategic
framework.
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REFERENCES
Books and Journals
Rodrigues, L. and Rodrigues, L., 2018. Economic-financial performance of the Brazilian
sugarcane energy industry: An empirical evaluation using financial ratio, cluster and
discriminant analysis. Biomass and bioenergy. 108. pp.289-296.
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