Recording Business Transactions: Journal Entries, Ledgers, Ratios, and COVID-19 Impact

This report explains how to record business transactions, prepare ledgers, formulate trial balance, income statement, and balance sheet. It also covers determining accounting ratios and understanding the impact of COVID-19 on business operations.

Business Transactions

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Record the enterprise proceedings in the journal........................................................................3
Prepare general ledgers...............................................................................................................5
Formulate the Trial Balance........................................................................................................8
Construct the Income Statement.................................................................................................8
Provide details of the Balance Sheet...........................................................................................9
Explain drawings and demonstrate it to Linda..........................................................................10
TASK 2..........................................................................................................................................10
Determine the Accounting Ratios of the Business....................................................................10
Describe the effect of COVID – 19 on the working of business..............................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The business record explains all the financial and non financial operations that occur in the
organisation which would be relatable to the operational work carried out with the motive of
increasing profits. The above mentioned transactions are to be recorded in the books of account
of business for the determination of profits earned by a company. The further terms in report
describes how transactions are recorded and then transferred to financial statements to ascertain
profit and losses from them. Ratio analysis is calculated for different financial values and an
clarification is delivered for the same.
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
(Computer and printer being bought for cash)
800
200
1000
05/10/21 Bank
Sales
2800
2800

(Goods worth 2800 being sold)
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
Bank
(a place being rented by the business and paid expenses
for same)
850
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
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

Flat Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 45000 31/10/21 Balance c/d 45000
45000 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
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
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
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
Computer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 800 31/10/21 Balance c/d 800
800 800
Printer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 200 31/10/21 Balance c/d 200
200 200
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
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
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
Sales Account
Date Particulars Ref Amount Date Particulars Ref Amount
05/10/21 Bank 2800
23/10/21 Rayan 300
31/10/21 Balacne C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 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
Wages Account
Date Particulars Ref Amount Date Particulars Ref Amount
26/10/21 Bank 820 31/10/21 Balance c/d 820
820 820
Drawings Account
Date Particulars Ref Amount Date Particulars Ref Amount
31/10/21 Bank 1200 31/10/21 Balance c/d 1200

1200 1200
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
Explain drawings and demonstrate it to Linda.
Drawings can be defined as the amount which is withdrawn during the life cycle of business by
the owner for personal expenses. With the help of Separate entity concept we can explain
business and business owner as two different aspects which states that personal expenses of
owner would not be accountable in business accounts and would only be borne by the partner. It
is therefore informed to Linda that in case of Anne , the amount of 1200 which has been paid
from the business account were the drawings done by Anne from business account as it was paid
from business bank account for the holiday trip planned of New york.

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 (Wiratama, and Asri, 2020) =
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
Describe the effect of COVID – 19 on the working of business.
COVID-19 has been an unpredicted , unimaginable situation and the most difficult situation to
cope up from. It resulted in shutting down of small enterprises in no time also large enterprises
found it quite difficult to even sustain in market with an equilibrium. Every business have been
through huge losses because of the fall in demand which resulted in less production following
the loop of losses and debts around. It also decreased interactions the workplaces and markets as
well. The decrease in operations of the business of Anne had also minimized their sales revenue
and in order profits sooner went down into losses. It is suggested to Anne that she must focus
first on wrapping up of losses in year 2021 to reach a equilibrium point. After this she can set its
target on increasing production and make a little profit during the year 2022. The ratio so taken
in account by Anne explains the motive is handling of losses and also focusing on delivery
behind the operating costs. So it can be concluded that Anne must remodel the method they are
following and give more attention to market.
CONCLUSION

From the above prepared report it can be concluded that recording of business transactions is one
of the main tool in companies as it helps the management to have a better understanding of the
issues in proceeding of operations , to know where a business is lacking behind and where it
needs to change the working of company and plan and implement new strategies. The accounting
and preparation of financial records gives a idea to its diversified users about the working ,
performance of business and the profits so earned during the year. The above report also
highlights interpretation and outcomes of financial ratios applied with the help of available
information.

REFERENCES
Books and Journals
Chen, S.F.S., 2010. A general TCE model of international business institutions: Market failure
and reciprocity. Journal of International Business Studies. 41(6). pp.935-959.
Smith, E.E., 2000. Materials on international petroleum transactions. Rocky Mountain Mineral
Law Foundation.
Gritzalis, S. and Gritzalis, D., 2001. A digital seal solution for deploying trust on commercial
transactions. Information Management & Computer Security.
Thompson, S. and Wright, M., 1995. Corporate governance: the role of restructuring
transactions. The Economic Journal, 105(430). pp.690-703.
Scheer, A.W., 2000. ARIS—business process modeling. Springer Science & Business Media.
Ghemawat, P. and Khanna, T., 1998. The nature of diversified business groups: A research
design and two case studies. The Journal of Industrial Economics, 46(1). pp.35-61.