Recording Business Transactions

This document discusses the advantages and disadvantages of for-profit business structures, main users of accounting information and their purposes, necessary journal entries to record transactions, transactions in the general ledger, income statement and statement of financial position for F. Jones. It also includes references for further reading.

Running head: RECORDING BUSINESS TRANSACTIONS
Recording business transactions
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Assessment 1..............................................................................................................................2
Part 1..........................................................................................................................................2
(a) Advantages and disadvantages for the profit business structure.................................2
(b) Main users of accounting information and the purpose of users.................................4
Part 2..........................................................................................................................................8
Part 3..........................................................................................................................................9
(a) Transactions in the general ledger of S. Young..........................................................9
(b) Trial balance as at 30th June 2018..............................................................................11
Part 4........................................................................................................................................12
(a) Income statement for F. Jones for the year ended 30th September 2018...................12
(b) Statement of Financial Position for F. Jones as at 30th September 2018..................13
Reference..................................................................................................................................14

2RECORDING BUSINESS TRANSACTIONS
Assessment 1
Part 1
(a) Advantages and disadvantages for the profit business structure
For-profit business structure’s main objective is to generate earnings for the owners
and its employees. Profits generated through sales of the products or providing the services
measures success of the for-profit entities and the generated profits can be shared with the
employees, shareholders and owners. For-profit businesses can be traded publicly or
privately. However, the publicly traded entities are required to comply with special rules and
regulation for protecting the shareholders. Setting-up of for-profit business has several clear
advantages like self employment and financial success that is proportional to the success.
Though, the advantages are associated with disadvantages like obligation and financial
liability to the creditors and investors (Petrovsky, James and Boyne 2015). Other advantages
of for-profit business structure are as follows –
 Money – most noticeable advantage associated with for-profit business structure is
possibility of generating money. Revenue generated more than the expenses belong to
the owner and the owner can spend it as per his preference including personal as well
as business expenses. More the company becomes successful greater is the financial
reward. However, the money goes to the owner but it is not necessary to the founder if
the owners are the investors or loan providers (Harper 2015).
 Regulation – for-profit organisations are required to go through less numbers of rules
and regulation unlike the non-profit organisations those have to go through the
internal earning service’s microscope to assure that they work for the purposes for

3RECORDING BUSINESS TRANSACTIONS
which they have been started up. For-profit organisations as a whole are allowed to
carry on their businesses as they consider fit, so they comply with the rules.
 Liquidity of the assets – if the business faces liquidity issues, the final advantage is
the assets of for-profit businesses are highly liquid. Even after the business goes into
liquidation the still can sell the assets of the company including office equipment,
buildings or equipments for settlements of debts (Harper 2015).
Various disadvantages of for – profit business structures are as follows –
 Taxes – for-profit businesses are subjected to corporate income tax imposed by the
local, state or federal government. They are further subjected to various other taxes
like property taxes and sales taxes and often charged under various other mandates.
This impact the bottom line of income significantly which in turn, impact stock value
of the company and overall prosperity (Rahim 2017).
 Missed special discounts or rates – generally the non – profit organizations are
entitled to special rates, discounts and get preferential treatment in different contexts.
Government and various other organizations like media house offers various
discounts to non-profit businesses and some of the non-profits are allowed to run the
public service announcements for free. However, no such offers are available to for-
profit businesses.
 Maintenance of records – as the for-profit organisations are subjected to various taxes
and the performance of these organisations are analysed for the purpose of making
investments, they are require to maintain and publish the financial data through
financial statements to the users for financial statement including creditors,
shareholders, investors, supplier and government. Further, the financial statements of
these companies are required to be audited on periodical basis (Rahim 2017).

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(b) Main users of accounting information and the purpose of users
Accounting is the business language that acts as the bridge among the users of
information and day to day business transactions. Primarily 2 types of users are there for
accounting information –
 Internal users – internal users of the information those are part of business, he/she
will be considered as the primary or internal users of accounting information. Internal
users include employees, owners and management.
 External information – if the user of information is external party or from outside the
business he/she will be considered as the secondary or external users of accounting
information. External users include vendors, lenders, tax and legal authorities,
potential investors and customers (Henderson et al. 2015).
Uses of the information to internal users –
Management – internal management of the organisation includes all the senior and junior
business managers. They use the information for –
 Forecasting, budgeting, analysis and taking crucial financial decisions
 Recognising warnings, investment decisions and opportunity signals
 Complying with all regulatory, statutory and other external body
 Taking informed and analysed decisions (Cao, Chychyla and Stewart 2015)
Employees – employees include the part time as well as full time employees. They are
generally on the payroll of the company. They use the information for –
 Checking overall financial position of the organisation as it may impact their
remuneration and the job security

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 Analysing whether the employer is depositing all the required funds to appropriate
authorities
 Making of decision where the share based payments are offered to the employees by
the employee
Owners – owners of the business are the legal stakeholders and the signing authority. They
use the information for –
 Observing the invested capital and analysing the downward or upward movements
 Tracking the investment and monitoring the return on the investment
 Keeping the eye on overall well-being of business (Cao, Chychyla and Stewart 2015).
Uses of the information to external users –
Investors – investors may include minority stakeholder, current investors. They use the
information for –
 Decisions associated with increase in the investment or divesting from business
 Analysing how the management utilizes equity invested in business.
 Analysing the present investment in business or overall financial health for the
potential investors
Lenders – non-banking financial institutions as well as banks that provide funds through loan
in form of credit or cash are known as lenders. They use the information for –
 Evaluating short term as well as long term stability of the entity in financial aspect
 Assessing creditworthiness with help of the financial ratios and scrutinising the
financial statements of the entity including balance sheet, income statement and cash
flow statement (Brigham et al. 2016).

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 An insight for profitability, liquidity and solvency with help of the financial ratio
analysis
Tax and regulatory authorities – regulatory bodies includes various authorities like
government, stock exchange, tax departments and statutory bodies. They use the information
for –
 Checking and ensuring that the organisation is complying with all the required
standards, principles, regulations and rules of accountings
 As one of the users for accounting information tax departments assures the accurate
tax computation by the entities (Easton and Sommers 2018)
 Ultimate purpose is protecting the integrity of business and safeguarding investors
Suppliers – suppliers are the providers of services and sellers of goods. They use the
information for –
 Setting up the payment terms and credit limit with the customers
 Inspecting credibility of the customers through evaluating the ability of repayment
Customers – customers are the purchasers of the goods and services and they may exist at any
of the stage of business cycle. Customers may be producers, retailers and manufacturers.
They use the information for –
 Assessing financial position of supplier that is required for maintaining stable supply
source
 Checking continuous stock inflow and pace of the overall production (Lin et al.
2015).

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Public – general public are also considered as the users of accounting information. General
public wants to know financial health of the business for getting fair idea of organizations
niche market, economic circumstances and business environment of the organization.

8RECORDING BUSINESS TRANSACTIONS
Part 2
Necessary journal entries to record the transactions by R. Locke & Co. for the month of June
2018

9RECORDING BUSINESS TRANSACTIONS
Part 3
(a) Transactions in the general ledger of S. Young

10RECORDING BUSINESS TRANSACTIONS

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(b) Trial balance as at 30th June 2018

12RECORDING BUSINESS TRANSACTIONS
Part 4
(a) Income statement for F. Jones for the year ended 30th September 2018

13RECORDING BUSINESS TRANSACTIONS
(b) Statement of Financial Position for F. Jones as at 30th September 2018

14RECORDING BUSINESS TRANSACTIONS
Reference
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement
audits. Accounting Horizons, 29(2), pp.423-429.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Harper, C., 2015. Organizations: Structures, processes and outcomes. Routledge.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Lin, C.C., Chiu, A.A., Huang, S.Y. and Yen, D.C., 2015. Detecting the financial statement
fraud: The analysis of the differences between data mining techniques and experts’
judgments. Knowledge-Based Systems, 89, pp.459-470.
Petrovsky, N., James, O. and Boyne, G.A., 2015. New leaders’ managerial background and
the performance of public organizations: The theory of publicness fit. Journal of Public
Administration Research and Theory, 25(1), pp.217-236.
Rahim, M.A., 2017. Managing conflict in organizations. Routledge.