Recording Business Transactions: Steps for Establishing a New Business of Decorator

The article explains the steps involved in establishing a new business of decorator and recording business transactions. It also discusses the decision makers in a large organisation listed on London Stock Exchange.

Recording Business
Transactions
1

Table of content
Table of Contents
Introduction......................................................................................................................................3
Part A...............................................................................................................................................3
Explain the steps for establishing a new business of Decorator.............................................3
Accounting involves recording, analysing and summarising the transactions of each business
organisation in order to provide information for decision making. Consider a large
organisation that is listed on a London Stock Exchange and identify the decision makers that
are referred in the above decisions.........................................................................................4
Part B...............................................................................................................................................5
Journal Entry..........................................................................................................................5
General Ledger of ABC enterprise, Maurice and Brothers ...................................................7
Part 3..............................................................................................................................................10
Income statement..................................................................................................................10
Prediction of Profit and Loss of B Moore for the year 2022................................................12
Conclusion.....................................................................................................................................13
REFERENCES..............................................................................................................................14
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Introduction
The process of recording business transactions is an important aspect of the business.
Business is basically referred as the economic activity that is performed with the intention of
earning profits in order to earn a living and maximise the wealth. The recording of transaction
comprises of financial statement and it is a key responsibility of every accounting department. In
order to record a specific transaction, it is very important to understand a transaction while
understanding the importance of each transaction. It is important to record the essential business
transaction as it can have a significant impact over the business and financial statements of the
business. The concept of income statement will also be covered in aspect of the business.
(Adamyk, 2017).
Part A
Explain the steps for establishing a new business of Decorator.
David Green is planning to set up a sole proprietorship business as a decorator. Sole
proprietor business is a business wherein the owner is a sole person who is responsible for all the
operations and the business activities. In order to start a business various steps are required to be
performed.
 Conduct market research- David green will require to conduct a market research in
order to analyse the number of competitors in the industry. The market research will help
the business to analyse the business environment as well as the analysis of market in
terms of demand and supply (Prihanto and et.al., 2019).
 Business plan- The next step after conducting a market research is to design a business
plan and according to this the business will be initiated. The business plan comprises of
various mission, vision and objectives that will be required to get accomplished by the
organisation. Fund business- The next step in order to establish a decorator business, the owner will
have to look upon various sources of funds. It is very important for the business to source
funds in order to survive and expand its business. There are various sources of funds that
can be opted by David Green in order to fund the business. The several sources of funds
have been suggested below (Thabit and Abbas, 2017).
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◦ Bank Loans- The banks loan is also considered as a source of funds wherein the bank
grants loan. The loan is repaid by paying interest upon the principal amount.
◦ Retained earnings- Retained earnings can be termed as personal investment that is
brought in by the entrepreneur in order to bring finances for the business. The
retained earnings are basically the savings of an individual (Aritonang and Janrosi,
2020).
◦ Government grants and subsidies- The government agencies tend to provide finances
in terms of grants and subsidies that is available for various businesses. They are
provided at the federal and provincial level.
 Pick business location- The business will require to pick a location that can prove
appropriate for the business. An ideal location is the one that is easily accessible for the
people.
 Choose a business structure- The owner will be required to choose a business structure
that David Green has already chosen as a sole proprietor.
 Choose your business name- An attractive business name needs to chosen that defines
the business (Rahwani, 2017).
 Register the business- Once the name of the business is decided, the business is required
to get registered.
 Get federal and state Tax IDs- The business of decorator needs to get federal and state
tax Ids in the name of business.
 Apply for licences and permits- The business will be required to apply for various
licences and permits to operate its business.
 Opening business bank account- Also, there must be a current bank account in the
name of the organisation through which the transactions will take place (Rechtman,
2017).
Accounting involves recording, analysing and summarising the transactions of each business
organisation in order to provide information for decision making. Consider a large
organisation that is listed on a London Stock Exchange and identify the decision makers
that are referred in the above decisions.
The organisation that has been considered for this section is Tesco. Tesco is a multi national
organisation that is listed upon London Stock Exchange. The decision makers of Tesco are
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basically the stakeholders of the organisation. The various participants involved in the decision
making process are discussed below (Hamilton, 2020).
 Customers: Customers are the one who helps in decisions-making. Tesco performs a
research upon the customers on a routine basis that helps the organisation to understand
the ways in which the customer think and focus on dealing with the issues in the
organisation.
 Suppliers: The organisation makes sure to have a clear and open dialogue with the
suppliers and they are further committed towards building a trusted partnership. Tesco
provides a feedback interaction with their suppliers for sharing the best practices and
learnings of the organisation across the whole supply chain (Reid and Myddelton, 2020).
 Shareholders: They are the one who are in regular touch with the investors and analysts
of the organisation in a consistent manner. They discuss various issues over meeting and
further respond to questions on particular issues that are in interest of the firm. The
organisation arranges an annual general meet which facilitates the shareholders to ask
questions related to any issues.
 Wider society: The company aims upon engaging with a broad range of
stakeholders which includes the media, NGOs, Government, trade bodies, etc. The
engagement of organisation ranges from group participation while responding to the
various multi stakeholder projects and information request. (Tillman, 2017).
Part B
Journal Entry
Date Particulars Ref. Amount Amount
Sept 1 Van A/c Dr.
Fixtures A/c Dr.
Stock A/c Dr.
P Mullen A/c Dr.
M Abel A/c Dr.
Bank A/c Dr.
Cash A/c Dr.
£ 5700
£ 2800
£ 5200
£ 105
£ 311
£ 1060
£ 85
5

To Syme Ltd. A/c
To A Hill A/c
To capital A/c
£ 229
£ 80
£ 14652
Sept 1 Bad Debts A/c Dr.
to P Mullen A/c
(Being debt written as bad debts)
£ 105
£ 105
Sept 5 Syme Ltd.
To Office fixtures A/c
(Being Office fixtures worth 150 were
returned and full allowance was
received)
£ 150
£ 150
Sept 10 Bad Debts A/c Dr.
Cash A/c Dr.
To M. Abel A/c
(Being £ 180 received from M. Abel and
for the rest he was declared bankrupt)
£ 131
£ 180
£311
Sept 18 Machinery A/c Dr.
to Cash A/c
to Bank A/c
to Brown Ltd. A/c
(Being machinery purchased on partial
payment through cash, cheque and
remaining on credit)
£1800
£100
£500
£1200
Sept 26 Brown Ltd A/c Dr.
to bank A/c
(Being partial payment made to Brown
Ltd through cheque)
£600
£600
Sept 28 Insurance A/c Dr.
Drawings A/c Dr.
£ 60
£ 70
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To Bank A/c
(Being insurance paid for business and
the remaining for personal house)
£ 130
£ 18057 £ 18057
General Ledger of ABC enterprise, Maurice and Brothers
Journal Entries
Date Particulars Ref. Amount Amount
01/08/21 Van A/c Dr.
Office Fixtures A/c Dr.
Bank A/c Dr.
To capital A/c
(Being assets and liabilities brought in)
£ 32000
£ 1200
£ 36800
£ 70000
02/08/21 Bank A/c Dr.
to Bank loan A/c
(Being bank loan received)
£ 12400
£ 12400
03/08/21 Cash A/c Dr
To Bank A/c
(Being cash withdrawn from bank)
£ 2800
£ 2800
04/08/21 Van A/c Dr.
To Bank A/c
(Bring van purchased through cheque)
£ 6200
£6200
05/08/21 Office fixtures A/c Dr.
to Bank A/c
to Sharp Office Ltd
(Being office fixtures purchased)
£3400
£ 1000
£ 2400
08/08/21 Van A/c Dr. £8700
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to Toyota A/c
(Being Van purchased on credit)
£8700
15/08/21 Office Fixtures A/c Dr.
To Cash A/c
(Being office fixtures paid through cash)
£ 110
£ 110
19/08/21 Toyota A/c Dr.
To Bank
(Being settlement done for Van through
cheque)
£ 8700
£ 8700
25/08/21 Bank A/c Dr.
to Cash A/c
(Being cash deposited in bank)
£ 430
£ 430
28/08/21 Office fixtures A/c Dr.
To Bank A/c
(Being office fixtures purchased)
£ 750
£ 750
£ 1134900 £ 1134900
Ledger Accounts
Account- Van
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
01/08/21
04/08/21
08/08/21
To Capital A/c
To Bank
To Toyota
£ 32000
£ 6200
£ 8700
31/08/21 By Balance c/d £ 46900
£ 46900 £ 46900
Account- Office fixtures
Date Particulars Ref Amount Date Particulars Ref Amount
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(Dr.) (Cr.)
01/08/21
05/08/21
05/08/21
15/08/21
28/08/21
To Capital A/c
To Bank A/c
To Sharp Office
Ltd.
To cash
To Bank
£ 1200
£ 1000
£ 2400
£ 110
£ 750
31/08/21 By Balance c/d £ 5460
£ 5460 £ 5460
Account- Bank
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
01/08/21
02/08/21
25/08/21
To Capital A/c
To Bank Loan A/c
To Cash A/c
£ 36800
£ 12400
£ 430
03/08/21
04/08/21
05/08/21
19/08/21
28/08/21
31/08/21
By Cash A/c
By Van A/c
By Office fixtures
By Toyota
By Office fixtures
By Balance c/d
£ 2800
£ 6200
£ 1000
£ 8700
£ 750
£ 30180
£ 49630 £49630
Account- Capital
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
31/08/21 To balance c/d £ 70000 01/08/21
01/08/21
01/08/21
Van A/c Dr.
Office Fixtures
A/c Dr.
Bank A/c Dr.
£ 32000
£ 1200
£ 36800
£ 70000 £ 70000
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Account- Bank loan
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
31/08/21 To balance c/d £ 12400 02/08/21 By Bank A/c £ 12400
£ 12400 £ 12400
Account- Cash
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
02/08/21 To Bank A/c £ 2800 15/08/21
25/08/21
By Office fixtures
By Bank
By Balance c/d
£ 110
£ 430
£ 2260
£ 2800 £ 2800
Account- Sharp Office
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref Amount
(Cr.)
31/08/21 To balance c/d £ 2400 05/08/21 By Office fixtures £ 2400
£ 2400 £ 2400
Account- Toyota
Date Particulars Ref Amount
(Dr.)
Date Particulars Ref
19/08/21 To Bank £ 8700 08/08/21 By Van £ 8700
£ 8700 £ 8700
Trial Balance
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Sr. no. Particulars Debit Amount Credit Amount
1 Capital Account - £ 70000
2 Bank £ 30180 -
3 Cash £ 2260 -
4 Bank Loan - £ 12400
5 Sharp office - £ 2400
6 Toyota - -
7 Van £ 46900 -
8 Office fixtures £ 5460 -
Total £ 84800 £ 84800
Part 3
Income statement
Income statement is basically a financial statement that fulfils the purpose of reflecting
income and expenditures of the organisation. The income statement reflects the amount of profit
or loss that an organisation incurs within an accounting period. The income statement is helpful
in understanding the financial health of the business (Musah, 2017). There are three components
of the income statements, namely revenues, expenses as well as profits. Revenues is basically a
term used for the money generation by the organisation in the business. Revenues are commonly
referred as sales in the income statement of the organisation. Expenses are basically the cost
incurred or required for something in order to acquire a resource for the organisation. Profit is
referred as the financial benefit that is acquired by the organisation when the revenue is
generated through a business activity and the revenues exceeds the expenses. The taxes are
charged upon the profits of the organisation. The profit that is earned by the businesses are
funnelled back to the business owners and they choose to either pocket the profit or reinvest the
profit into the business (Lemieux, 2017). The income statement of B Moore has been prepared
below for the year ender 2021.
Income statement of B Moore for the year ended 2021
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Details
£ £
Sales 95000
Less Returns inwards (Sales Returns) -3500
Net Sales 91500
Less Cost of Goods Sold :
Opening Stock 18000
Plus Purchases 110000
Less Returns outwards (Purchase Returns) -720
Plus, Carriage inwards 890
128170
Less Closing Inventory -13000
-115170
Gross Loss -23670
Less Expenses:
Carriage Outward 500
Motor Expenses 1400
Rent 7000
Telephone 830
Wages & Salary 14000
Insurance 1030
Office Expenses 800
Sundry Expenses 250 -25810
Net Loss -49480
Prediction of Profit and Loss of B Moore for the year 2022
When setting up a business, the organisation has an aim of earning profit in order to
sustain in the market and maximise the wealth. There are only three situations that a business
faces. It is either profit or loss and in some circumstances, the business also faces a situation of
break even wherein the business neither earns profit nor loss. Profit is referred as the financial
benefit that is acquired by the organisation when the revenue is generated through a business
activity and the revenues exceeds the expenses. The taxes are charged upon the profits of the
organisation. The profit that is earned by the businesses are funnelled back to the business
owners and they choose to either pocket the profit or reinvest the profit into the business. Loss is
a situation where the expenses of the business exceeds from that of the revenues that is generated
(Tytenko, 2018).
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In case of B Moore, it is important to predict the profits or loss of the business. The
prediction of the success of the organisation will be performed on the basis of last year profits. In
order to predict the profits and loss of B Moore for the year 2022 will be performed on the basis
of profits and losses from the year 2013 to 2021. The amount of Profits and losses that has been
incurred by the organisation since 2013 have been depicted below (Chow and Schoenbaum,
2020).
Year Profit / Loss
2013 55800
2014 77100
2015 58500
2016 98400
2017 87600
2018 97200
2019 112400
2020 -65400
2021 -49480
On the basis of the data above, the profit of the year 2022 can be depicted on the basis of
the profits and loss that has been incurred by B Moore in aspect of the average of the last few
years. The average profits for the year 2022 can be calculated by adding the profits of each year
and dividing the sum by the number of years. The average profit has been calculated below.
Average profit = 55800 + 77100 + 58500 + 98400 + 87600 + 97200 + 112400 - 65400 – 49480
9
= 472120
9
= 52458
Hence, the prediction can be made from the above analysis that B Moore is likely to incur
a profit of 5248 in the year 2022. Despite, facing the losses in the two consecutive years the
organisation can be at the stage of recovering the losses that had been incurred due to the impact
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of pandemic. As now the situations are turning back to normal, the situation is likely to turn
positive for B Moore as well (Durach And et.al., 2021).
Conclusion
It can be concluded from the above report that it is essential for every organisation to
record its business transactions. The recording of transaction comprises of financial statement
and it is a key responsibility of every accounting department. In order to record a specific
transaction, it is very important to understand a transaction while understanding the importance
of each transaction. The recording of business transaction are helpful in determining the financial
position of the organisation. The report has discussed the various steps for establishing a
business as a decorator. Further the report has also highlighted various decision makers in an
organisation. The part C of the assessment report comprises of the income statement for the
organisation of the year 2021. Further, the prediction of profit and loss for the year 2022 has
been made in accordance of the profits and loss incurred by the organisation from 2013 to 2021.
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REFERENCES
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ACCOUNTING RECORDING SYSTEM FOR SMALL AND MEDIUM
ENTERPRISES. In ICCD (Vol. 2, No. 1, pp. 43-47).
Rahwani, N.R., 2017, December. PATCHING THE LIMITATIONS OF ACCURATE
ACCOUNTING 5.0 in RECORDING SALES ADVANCE TRANSACTIONS.
In Proceeding of National Conference on Asbis (Vol. 2, No. 1, pp. 308-314).
Rechtman, Y., 2017. Blockchain: The making of a simple, secure recording concept. The CPA
Journal, 87(6), pp.15-17.
Reid, W. and Myddelton, D.R., 2020. The meaning of company accounts. Routledge.
Tillman, S.B., 2017. Business Transactions and President Trump's Emoluments Problem.
Lemieux, V.L., 2017, December. A typology of blockchain recordkeeping solutions and some
reflections on their implications for the future of archival preservation. In 2017 IEEE
International Conference on Big Data (Big Data) (pp. 2271-2278). IEEE.
Aritonang, S.D. and Janrosi, V.S.E., 2020. Analysis of the Management and Recording of Petty
Cash at PT Barelang Elektrindo Era Cemerlang in Batam City. International Journal of
Management and Business (IJMB), 1(2), pp.81-87.
Thabit, T. and Abbas, N., 2017. A Proposed Fuzzy Logic Based Framework for E-Accounting
Evaluation in Iraq. Qalaai Zanist Scientific Journal, A Scientific Quarterly Refereed
Journal Issued by Lebanese French University–Erbil, Kurdistan, Iraq, 2(6).
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smart contracts. Journal of Corporate Accounting & Finance, 31(2), pp.7-12.
Durach, C.F. And et.al., 2021. Blockchain applications in supply chain transactions. Journal of
Business Logistics, 42(1), pp.7-24.
Musah, A., 2017. Benefits and challenges of bookkeeping and accounting practices of SMEs and
its effect on Growth and Performance in Ghana. Journal of Accounting, Business and
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Chow, D.C. and Schoenbaum, T.J., 2020. International business transactions: problems, cases,
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