Recording Business Transaction

This document provides an overview of recording business transactions in T-accounts, ledgers account, trial balance, income statement, and statement of financial position. It also explains the concept of drawings and includes a detailed analysis of the financial position of Linda Ltd through ratio analysis.

Recording Business Transaction

INTRODUCTION
The various accounting transactions are recorded in the books of accounts to derive the
results of the operations that the company has performed. The income statement shall show the
profitability of the company and the balance sheet shall be depicting the financial position of the
company. The report shall be showing the transactions of the business that are being recorded in
the primary book of journal. Further it shall be highlighting the posting of such accounting
transactions in the ledger of the company. In order to check the accuracy, the balance of the
accounts is carried forward to the trial balance. The project shall be reflecting the profitability
position of the business by incorporating all the incomes and expenses for the year in the profit
and loss statement. Lastly, the balance sheet shall be portraying the financial position of the
company.
PART A
a. Recording business transaction in T-accounts
Date Particulars
Debit (in
£)
Credit (in
£)
01/10/20 Bank a/c dr. 8000
cash a/c dr. 5200
fixed a/c dr. 3000
To capital a/c 16200
02/10/20 fixed a/c dr. 1000
To bank a/c 1000
04/10/20 purchase a/c dr 2450
To Toys Ltd. a/c 2450
05/10/20 bank a/c dr. 1500
To sales a/c 1500
12/10/20 Repairing a/c dr. 80
To cash. a/c 80

18/10/20 Toys ltd. A/c dr
To purchase return a/c 100
100
21/01/20 bank a/c dr. 500
To rent A/c 500
23/10/20 cash a/c dr. 2000
Fred a/c dr 400
To sales A/c 2400
24/10/20 fixed a/c dr. 2500
to bank A/c 2500
26/02/20 Wages A/c dr. 820
To bank A/c 820
30/10/20 Rent A/c dr. 1000
To bank A/c 1000
31/10/20 Drawing A/c dr. 1600
To bank A/c 1600
Total 12950 12950
b. Ledgers account
Bank Account
Date Particular Amt. Date Particular Amt.
02/10/
20 To fixed assets A/c 1000 01/10/20 By capital A/c 8000
24/10/
20 To fixed assets A/c 2500 05/10/20 By sales A/c 1500
26/10/
20 to wages A/c 820 21/10/20 By rent A/c 500
30/10/
20 To rent A/c 1000
31/10/
20 To drawing A/c 1600

31/10/
20 To closing A/c 3080
Total 10000 10000
Cash Account
date Particular Amt. date Particular Amt.
12/10/20 To Repairing A/C 80 01/10/20 By capital A/c 5200
23/10/20 By sales A/c 2000
31/10/20 To closing A/c 7120
Total 7200 7200
Capital Account
date Particular Amt. date Particular Amt.
01/10/
20 To fixed assets A/c 3000
To cash A/c 5200
To bank A/c 8000 31/10/20
By closing
Balance 16200
Total 16200 16200
Fixed assets
Account
date Particular Amt. date Particular Amt.
01/10/20 By capital A/c 3000
02/10/20 By bank A/c 1000
24/10/20 By bank A/c 2500
31/01/
20 To closing A/c 6500
Total 6500 6500
Purchase Account
date Particular Amt. date Particular Amt.
04/10/20 By Toys ltd. 2450
31/10/ To closing A/c 2450

20
Total 2450 2450
Purchase return
A/c
date Particular Amt. date Particular Amt.
18/10/
20 To Toys ltd. 100
31/10/20
By closing
Balance 100
Total 100 100
Toys ltd. Account
date Particular Amt. date Particular Amt.
04/10/
20 To purchase A/c 2450 18/10/20
By purchsde
return A/c 100
31/10/20
By closing
Balance 2350
Total 2450 2450
Sales Account
date Particular Amt. date Particular Amt.
05/10/
20 To bank A/c 1500
23/10/
20 To cash A/c 2000
23/10/
20 To Fred A/c 400
31/10/20
By closing
Balance 3900
Total 3900 3900
Rent Account
date Particular Amt. date Particular Amt.
21/10/
20 To bank A/c 500 30/10/20 By Toys ltd. 1000

31/01/
20 To closing A/c 500
Total 1000 1000
Fred Account
date Particular Amt. date Particular Amt.
23/10/20 By sales A/c 400
31/10/
20 To closing A/c 400
Total 400 400
Wages Account
date Particular Amt. date Particular Amt.
26/10/20 By bank A/c 820
31/10/
20 To closing A/c 820
Total 820 820
Drawing Account
date Particular Amt. date Particular Amt.
31/10/20 By bank A/c 1600
31/10/
20 To closing A/c 1600
Total 1600 1600
Repairing
Account
date Particular Amt. date Particular Amt.
12/10/20 By cash A/c 80
31/10/
20 To closing A/c 80
Total 80 80

c. Extracting trial balance
Trial Balance as on 31 October 2020
Particulars Debit Credit
Bank A/c 3080
Cash A/c 7120
Capital A/c 16200
Fixed assets A/c 6500
Purchase A/c 2450
Purchase return A/c 100
Toys ltd. A/c 2350
Repairing A/c 80
sales A/c 3900
Rent A/c 500
Fred A/c 400
wages A/c 820
drawing A/c 1600
Total 22550 22550
d. Preparing an income statement
Particulars
Debit side
Amount (in
£)
Credit side
Amount (in
£)
Revenues 3900
Beginning inventory
add. Purchase 2450
less purchase
return -100
less ending
inventory -250
cost of Goods
sold 2100
Expenses
Repairing 80
Rent 500
wages 820 1400
Net earning 400

e. Presenting statement of financial position
Particulars Amount (in £)
Assets
Fixed assets 6500
Current Assets
Fred ltd. 400
Bank 3080
Cash 7120
Inventory 250
Total 17350
Liabilities Amt.
Capital 16200
less drawing -1600
Net profit 400
creditors
Toys ltd. 2350
Total 17350
f. Explaining drawing which are concerning for Linda Ltd
The drawings of a business can be defined as the withdrawal of any sum made by the
owner of the business for some personal use. It is not related with the business and its operations
so it shall not form part of the business expenses. The amount of drawings is affected in the
balance sheet of the business where the assets are decreased with the amount that is withdrawn
from the bank. On the other hand, it shall be decreased from the owner's equity and reduce the
amount of capital contribution to the business (Feeney and Hogan, 2018).

In the above case study, it is specified that Linda has withdrawn the amount from the
business for the holiday package which she has planned sue to the stress of the business. Such
amount shall also be considered as the drawings of Linda from the business as it is withdrawn for
the personal purpose of holidaying and has nothing to do with the business operations. Even
though the holiday stands to relieve the stress caused by the business, it still shall be charged as
drawings as its doing no good to the business in financial or non-financial terms. So ultimately
Linda's capital shall be reduced from the amount of drawings that she has withdrawn from the
company.
PART B
(i) Summarizing financial statements of Linda Ltd through ratio analysis
Ratio analysis
GP Ratio
Particulars formula Figures
Sales 3900
Cogs 2100
GP ratio (Net sales-COGS)/net sales (3900-2100)/3900= 46.15%
NP Ratio
Particulars formula Figures
Net income 400
Net sales 3900
Net profit ratio (“Net profit/net sales)*100 10.16%

Particulars Formula Figures
Current assets 10850
Current liabilities 2350
Current ratio Current assets/Current
liabilities
4.62
Quick ratio
Particulars Formula Figures
Quick assets Current asserts- inventory 10600
Current liabilities 2350
Quick ratio Quick assets/current liabilities 4.51
Accounts receivable collection period
Particulars Formula Figures
Receivables 400
Net sales 3900
(Receivables / net sales)
/ 365
37 days
Accounts payable payment period

Particulars Formula Figures
Payables 2350
Accounts payable
payment period.
(Creditors/ net purchase)*365 365 days
(ii) Commenting on the financial position of Linda Ltd in against to the competitors
GP ratio of company is 46.15% that means company is earning 46% of profit after
dedication of cost of goods sold. And same ratio for competitor is 54% which reflect as better
gross profit earn by competitors. So company should increase gross profit margin by the
implementing better cost management (Chow and Schoenbaum, 2020).
Net profit Ratio- it indicates the profit after all other incomes and expenses from gross
profit. if the company is getting higher net profit margin than gross in reflect about more control
on other expenses and better investment policy.
NP ratio is 10.26% for company and 31% for competitors, it means other investment policies are
not up to mark. Company should increase its investment revenue and reduce extra cost that can
be control.
Current ratio reflects company's short term liquidity power; means is company in
position to meet its short term debt with current assets. Higher current ratio is higher liquidity
with company but sometimes it is not good because it leads to increase in cash balance. Range of
current ratio between 1 to 2 is considered as good but is case of this company it is more than 4.so
company can reduce the extra cash holding and invest it to earn more profit from investment.
Quick ratio indicates very short period liquidity moreover in include only items that can
easily convert into cash. This ratio is usable for companies which are more dependable on
smaller business for row material and other services. Quick ratio for the company is 4.51 times

and for competitors it is1.35 times so clearly company needs to decrease it and investment more
money it production activities and investment.
Average collection period shows time will be taken by debtors to company to get money
back lower period reflect more efficient working capital management. If company has lower
collection period than it need not carry extra cash for payment. The ratio is 37 days for company
and 50 days for competitors it is good, means company is getting money from debtors faster than
competitors.
Average payable period it shows the negotiation power of company, how to
convenience the creditors to get delay in making payment (Manehat, Irianto and Purwanti, 2019).
So company can enjoy liquidity for longer period. Ratio is 72 days for competitors that shows
competitors has to pay money in 72 days to creditors but for Linda company it is 365 days that
means they are in better position to reduce the more liquidity and make other function strong.
Form comparison of these we can clearly understand that company need to reduce it
liquidity and use cost accountancy to improve cost part. Extra liquidity can be invested to get
some extra return
CONCLUSION
It can be summarized from the above report that accounting the transactions of the
business is very important for the business decision-making process and to serve to the internal
and the external users of these statements of accounts. The profitability and the financial position
of the company can be known and also it facilitates in knowing the profitable and the non-
profitable ventures of the business. The drawings from the business for personal use shall
decrease the capital contribution that is made by the owner. The ratio analysis also facilitates
knowing the liquidity, efficiency and financial position of the business. It also facilitates
comparison internally with the other departments and externally with the competitors in the
industry. This shall help in the decisions that are to be taken in the future so that the profitability
and growth prospects of the business can be maximized.

REFERENCES
Books and Journals
Feeney, S. and Hogan, J., 2018. Drawings of Corporate Social Responsibility: a Picture Draws a
Thousand Words. Irish Journal of Academic Practice. 7(1). p.1.
Chow, D. C. and Schoenbaum, T. J., 2020. International business transactions: problems, cases,
and materials. Wolters Kluwer Law & Business.
Manehat, B. Y., Irianto, G. and Purwanti, L., 2019. Payment System and Brideprice Recording in
Belu-Indonesia. International Journal of Multicultural and Multireligious
Understanding. 6(2). pp.303-310.
Online