Recording Business Transactions: Journal Entries, Balance Sheets, and Ratio Analysis

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This document provides an overview of recording business transactions, including journal entries, balance sheets, and ratio analysis. It covers topics such as liquidity ratios, current ratio, gross profit margin, and net profit margin. The document also includes examples and calculations to help understand the concepts better. Suitable for students studying accounting or business management.

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Recording
Business
Transactions

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Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Journal transactions of T- accounts:............................................................................................1
Balance the accounts and an opening balances:..........................................................................2
Trial balance:...............................................................................................................................6
Income statement for the period 31st Oct. 2020:.........................................................................6
Preparation of financial position 31st Oct. 2020:........................................................................7
PART B............................................................................................................................................7
Ratio calculation for Linda's business:........................................................................................7
Analysis of ratio analysis in comparison to its competitors:.......................................................8
CONCLUSION..............................................................................................................................10
RFERENCES.................................................................................................................................11
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INTRODUCTION
Business transactions are those which are use for company's for running its activities.
These are the transactions which are company's runs for its profits. For example, the company
purchases machinery for running its business. It is the transaction for business which it views for
its better performance which helps for higher profitability for the businesses. It is about the
company runs activities for the accomplish its tasks. These are the business accounting which
businesses views for its higher profitability. It is about for determine the transactions for what
account will makes affect, for it company know the account, records what will debit what will
credit for its transactions which helps for better performance which helps for higher profitability
for the businesses. This report is about the recording business transactions. This report includes
topics which are Journal, ledger, trial balance etc. Apart from it includes topics which are ratios,
balance sheet, income statements which helps for better performance which helps for higher
profitability for the businesses (Harkiolakis and Halkias, 2016).
PART A
Journal transactions of T- accounts:
JOURNAL ENTRIES
S.NO Date Particulars L.F £ £
2020
1 01/10/20 Cash A/c Dr. 5200
Bank A/c Dr. 8000
Van A/c Dr. 3000
To Capital A/c 16200
(Capital invested into business)
2 02/10/20 Laptop A/c Dr. 1000
To Bank A/c 1000
( Purchased laptop by cheque)
3 04/10/20 Purchase A/c Dr. 2450
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To Toys LTD. A/c 2450
(Goods purchased on Credit basis)
4 05/10/20 Bank A/c Dr. 1500
To Sales A/c 1500
(Goods sold by cheque)
5 12/10/20 Repair A/c Dr. 80
To Cash A/c 80
(Laptop Repair with cash)
6 18/10/20
Toys LTD. A/c
Dr. 100
To Purchase Return A/c 100
(Goods Return)
7 21/10/20 Bank A/c Dr. 500
To rent A/c 500
(Rent received)
8 23/10/20 Fred A/c Dr. 400
Cash A/c Dr. 1500
To Sales A/c 1900
(Goods sold)
9 23/10/20 Cash A/c Dr. 500
To Sales A/c 500
(Goods sold)
10 24/10/20
Car A/c
Dr. 2500
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To Bank A/c 2500
(Car purchased
11 26/10/20 Wages A/c Dr. 820
To Bank A/c 820
(Wages paid)
12 30/10/20 Drawings A/c Dr. 1600
To Bank A/c 1600
(Amount withdraw for personal use)
13 31/10/20 Rent A/c Dr. 1000
To Bank A/c 1000
(Rent Paid)
Total 30150 30150
Balance the accounts and an opening balances:
Ledger
BANK ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
01/10/20 To capital 8000 02/10/20 By laptop 1000
05/10/20 To sales 1500 24/10/20 By car 2500
21/10/20 To capital 500 26/10/20 By Wages 820
30/10/20 By drawings 1600
31/10/20 By rent 100
31/12/20 By balance c/d 3080
Total 10000 Total 10000
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01/11/20 To balance b/d 3080
CASH ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
01/10/20 To capital 5200 12/10/20 By Repair 80
23/10/20 To sales 1500 31/10/20 By balance c/d 7120
To sales 500
Total 7200 Total 7200
01/11/20 To balance b/d 7120
VAN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
01/10/20 To capital 3000 31/10/20 By balance c/d 3000
Total 3000 Total 3000
01/11/20 To balance b/d 3000
CAPITAL ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To balance c/d 16200 01/10/20 By Bank 8000
By Cash 5200
By Van 3000
Total 16200 Total 16200
01/11/20 By Balance b/d 16200
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LAPTOP ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
02/10/20 To bank 1000 31/10/20 By balance c/d 1000
Total 1000 Total 1000
01/11/20 To balance b/d 1000
PURCHASE ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
04/10/20 To toys ltd 2450 31/10/20 By Trading 2450
Total 2450 Total 2450
TOYS LTD ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
18/10/20
To Purchase
Return 100 04/10/20 By purchase 2450
31/10/20 To balance c/d 2350
Total 2450 Total 2450
01/11/20 By Balance b/d 2350
SALES ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To Trading 3900 05/10/20 By Bank 1500
23/10/20 By fred 400
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By Cash 1500
By Cash 500
Total 3900 Total 3900
PURCHASE RETURN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To Trading 100 18/10/20 By toys ltd. 100
Total 100 Total 100
RENT ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To bank 1000 21/10/20 By Bank 500
31/10/20
By Profit and
Loss 500
Total 1000 Total 1000
FRED'S ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
23/10/20 To sales 400 31/10/20 By balance c/d 400
Total 400 Total 400
400
WAGES ACCOUNT
Dr.
CR.
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Date Particulars J.F £ Date Particulars J.F £
26/10/20 To sales 820 31/10/20
By Profit and
Loss 820
Total 820 Total 820
CAR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
24/10/20 To bank 2500 31/10/20 By balance c/d 2500
Total 2500 Total 2500
01/11/20 To balance b/d 2500
REPAIR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
12/10/20 To cash 80 31/10/20
By Profit and
Loss 80
Total 80 Total 80
DRAWINGS ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
30/10/20 To bank 1600
By Profit and
Loss 1600
Total 1600 Toal 1600
Trial balance:
Trial balance:
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Debit Trail Balance Credit
Particulars £.( amount) Particulars £( amount)
Bank 3080 Capital 16200
Cash 7120 Toys Ltd. 2350
Van 3000 Sales 3900
Laptop 1000 Purchase Return 100
Purchase 2450
Rent 500
Fred 400
Wages 820
Car 2500
Repair 80
Drawings 1600
Total 22550 Total 22550
Income statement for the period 31st Oct. 2020:
Dr Trading Account Cr.
Particulars £. Particulars Cr.
Purchase 2450 Sales 3900
Gross Profit 1800 Closing Stock 250
Purchase Return 100
Total 4250 Total 4250
Dr Profit and Loss Account Cr.
Particulars £. Particulars £
Rent 500 Gross Profit 1800
Wages 820
Repair 80
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Net Profit 400
Total 1800 Total 1800
Preparation of financial position 31st Oct. 2020:
Dr Balance sheet Cr.
Liabilities £. Assets Cr.
Capital 16200 Bank 3080
(-)Drawings 1600 14600 Cash 7120
Creditor (Toys Ltd) 2350 Van 3000
Net Profit 400 Laptop 1000
Car 2500
Debtor (Fred) 400
Closing Stock 250
Total 17350 Total 17350
PART B
Ratio calculation for Linda's business:
Competitors Average
Net profit margin 31%
Gross profit margin 54%
Current ratio 2.87x
Acid test ratio 1.35x
Accounts receivable collection period 50 days
Accounts payable payment period 72 days
Net profit
margin
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31st Oct.2020
Net profit 400
Sales 3900
Ratio 0.1025641026
Gross profit
margin
31st Oct.2020
Gross profit 1800
Sales 3900
Ratio 0.4615384615
Current
Ratio
31st Oct.2020
Current assets 10850
Current Lia. 2350
Ratio 4.6170212766
Quick assets
ratio
31st Oct.2020
Quick assets 10600
Current Lia. 2350
Ratio 4.5106382979
Debtors
collection period
Avg. Debtors 400
Net credit sales 3900
Ratio
37.435897435
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Creditors
collection period
Avg. Creditors 2350
Net credit
purchase 2350
Ratio 365
Current assets = Cash + bank + stock
= 3080 + 7120 + 400 + 250 = 10850
Quick Assets = Current assets – Stock
= 10850 -250 = 10600
Net Credit Purchase = Purchase – purchase return
= 2450 – 100 = 2350
Analysis of ratio analysis in comparison to its competitors:
Ratio analysis: It is about analysis business performance which helps for know its
financial position. It helps for know the liquidity, solvency, profitability for the company's better
performance which helps for higher profitability for the businesses. It is about know the financial
performance for the company which includes various ratios which are liquidity, solvency,
profitability, debt, activity, market, turnover, coverage ratios which helps for better performance
which helps for higher profitability for the businesses. It helps for know the financial statements
for the businesses (Tillman, 2017). It helps managers for the financial decision making for the
company which helps them for better performance. It helps for reduce the costs which makes
higher profits for the company. The values which are the use for ratio analysis which takes for
the financial statements for the company.
Types for ratios:
Liquidity ratios: These ratios helps for the know ability for the company for paying its
debts. The higher liquidity views the better performance for the company for using its resources
which helps for better performance which helps for higher profitability for the businesses.
Current ratio: The current ratio are the which views the relation for current liabilities,
current assets. The higher the ratio views higher the better performance for the company.
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Current Ratio = Current Assets / Current Liabilities
Quick ratio: The quick ratio are the which views the cash which company has for paying
its debts for views the company has cash, cash equivalents for its activities which helps
its for the better performance which helps for higher profitability for the businesses.
Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts Receivables) /
Current Liabilities
Turnover ratios: Turnover ratios are those which are use for determine the company's
better performance how it use the purpose for higher profitability for the businesses. These ratios
are includes various ratios which are assets turnover ratios, inventory turnover ratios, receivables
turnover ratios etc. These ratios views the performance for the company for its assets which
helps company's for better performance which helps for higher profitability for the businesses.
Profitability ratios: These ratios helps for the views the company's ability for earning
profits. These ratios includes various ratios which includes gross profit ratios, Net profit ratios,
activity ratios, return for capital ratios etc. These ratios company know for which expenses gives
higher profits for the company for its resources. This is about how company use its resources
which helps for better performance which helps for higher profitability for the businesses.
This views the above company's ratios for their financial performance which they views
for its use for its resources for its financial position. These ratios helps company for managing its
resources which helps for better performance which helps for higher profitability for the
businesses. It views the Linda's performance, its competitors performance for which company
has the various ratios which helps for better performance which helps for higher profitability for
the businesses. This report views the company its competitor has better performance for its gross,
net profits where the company Linda's has better cash for its debts, debtors, competitor has better
performance for its debtors, creditors collections which helps for better performance which helps
for higher profitability for the businesses (Viriyasitavat and Hoonsopon, 2019).
CONCLUSION
From the above report it has been concluded that business transactions those which
company has for running its activities which helps company's for better performance which
helps for higher profitability for the businesses. Company has business transactions which it is
views which helps company's for preparing financial statements for the company. Financial
statements includes balance sheet, income statements etc. These helps company for know its
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better performance which helps for higher profitability for the businesses. Company use ratios
analysis, it is about analysis business performance which helps for know its financial position. It
helps for know the liquidity, solvency, profitability for the company's better performance which
helps for higher profitability for the businesses. It is about know the financial performance for
the company which includes various ratios which are liquidity, solvency, profitability, debt,
activity, market, turnover, coverage ratios which helps for better performance which helps for
higher profitability for the businesses. These transactions helps company for its better
performance which helps for higher profitability for the businesses.
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RFERENCES
Books and journals:
Harkiolakis, N. and Halkias, D. 2016. E-Negotiations: Networking and cross-cultural business
transactions. CRC Press.
Tillman, S. B. 2017. Business Transactions and President Trump's Emoluments Problem.
Viriyasitavat, W. and Hoonsopon, D. 2019. Blockchain characteristics and consensus in modern
business processes. Journal of Industrial Information Integration. 13. pp.32-39.
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