Business Transactions: Recording, Analysis and Financial Statements

This report provides a comprehensive analysis of recording business transactions and their impact on financial statements. It includes journal entries, ledger accounts, a trial balance, an income statement, and a statement of financial position. A letter to Linda addresses concerns about drawings and their effect on the organization's capital. The report also computes and analyzes key financial ratios such as gross profit ratio, net profit ratio, current ratio, and quick ratio to assess the company's profitability, liquidity, and efficiency. A comparison with competitors and an evaluation of the impact of COVID-19 on the company's performance are also included, concluding that the company maintains good financial health despite external challenges. Desklib provides access to this and many other solved assignments.

Recording Business
Transactions

TABLE OF CONTENTS
ASSESSMENT 2.............................................................................................................................1
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
a) Journal entries are as below:..............................................................................................1
b) Ledger accounts for getting opening balance is shown as following:...............................4
c) Trial Balance has 31st October 2020.................................................................................11
d) Income Statement for the period ended 31st October 2021.............................................12
e) Statement of Financial Position as at 31st October 2021.................................................13
f) Letter To Lind regarding concern for drawings................................................................13
PART B..........................................................................................................................................14
a) computing ratios for Anne’s business for October 2021..................................................14
b) Analysing performance of company by comparing and impact of Covid 19..................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

ASSESSMENT 2
INTRODUCTION
Recording business transaction is concerned with possessing the step to examine the
particular practice that has impact on specific account. It helps in gaining information regarding
the particular processing so that sound business decision. The current report will pay attention
on assessing the significant information regarding journal entries, ledger, trial balance, income
& financial position. Present report will give emphasis on having relevant details by conducting
ratio analysis in turn comparison of financial performance of enterprise can be done.
PART A
a) Journal entries are as below:
1

2

3

b) Ledger accounts for getting opening balance is shown as following:
Bank A/c
Date Particulars J.F Amount (£) Date Particulars J.F
Amount
(£)
01/10/21 To capital 10000 04/10/21 By Computer A/c 800
05/10/21 To sales A/c 2800 04/10/21 By Printer A/c 200
21/10/21 To Rent A/c 800 24/10/21 By Laptop A/c 1700
26/10/21 By Wages A/c 820
30/10/21
By Rent of office
flat A/c 850
31/10/21
By Withdrawal
A/c 1200
31/10/21 By Balance c/d 8030
Total 13600 Total 13600
Cash A/c
Date Particulars J.F Amount Date Particulars J.F Amount
4

(£) (£)
01/10/21
To capital
A/c 4800 12/10/21 Repairs of printer A/c 110
23/10/21 To sales A/c 1800 31/10/21 By Balance c/d 7340
23/10/21 To sales A/c 700
31/10/21
To Rayan
A/c 150
Total 7450 Total 7450
Flat A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
01/10/21 To capital 45000
31/10/2
1 By Balance c/d 45000
Total 45000 Total 45000
Capital A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
31/10/21
To Balance
c/d 71800 01/10/21 By Bank A/c 10000
01/10/21 By Cash A/c 4800
01/10/21 By flat A/c 45000
01/10/21 By car A/c 12000
5

Total 71800 Total 71800
Furniture A/c
Date
Particular
s J.F
Amount
(£) Date
Particul
ars J.F
Amount
(£)
02/10/21
To Home
Ltd A/c 5400 18/10/21
By
Home
Ltd A/c 250
31/10/21
By
Balance
c/d 5150
Total 5400 Total 5400
Home Ltd A/c
Date
Particular
s J.F
Amount
(£) Date
Particular
s J.F
Amount
(£)
18/10/21
To
furniture
A/c 250 02/10/21
Furniture
A/c 5400
31/10/21
To Balance
c/d 5150
Total 5400 Total 5400
Laptop A/c
6

Date
Particular
s J.F
Amount
(£) Date
Particular
s J.F
Amount
(£)
24/10/21
To bank
A/c 1700 31/10/21
By
Balance
c/d 1700
Total 1700 Total 1700
Rent A/c
Date
Particular
s J.F
Amoun
t (£) Date Particulars J.F
Amount
(£)
30/10/21
To bank
A/c 850 31/10/21 By Balance c/d 850
Total 850 Total 850
Computer A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
04/10/21
To bank
A/c 800
31/10/2
1 By Balance c/d 800
Total 800 Total 800
Printer A/c
7

Date
Particular
s J.F
Amoun
t (£) Date Particulars J.F
Amount
(£)
04/10/21
To bank
A/c 200 31/10/21 By Balance c/d 200
Total 200 200
Sales A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
31/10/21
To Balance
c/d 5600
05/10/2
1 By Bank A/c 2800
23/10/2
1 By cash A/c 1800
23/10/2
1 By Rayan A/c 300
23/10/2
1 cash A/c 700
Total 5600 Total 5600
Repairs of printer A/c
Date
Particular
s J.F
Amoun
t (£) Date Particulars J.F
Amount
(£)
12/10/21 to cash A/c 110 31/10/21 By Balance c/d 110
8

Total 110 110
Rent A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
31/10/21
To Balance
c/d 800
21/10/2
1 By Bank A/c 800
Total 800 800
Rayan A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
23/10/21
To sales
A/c 300 31/10/21 cash A/c 150
31/10/21 By Balance c/d 150
Total 300 Total 300
Wages A/c
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
26/10/21
To bank
A/c 820 31/10/21 By Balance c/d 820
9

Total 820 Total 820
Withdrawal A/c
Dr. Cr.
Date
Particular
s J.F
Amount
(£) Date Particulars J.F
Amount
(£)
31/10/21
To bank
A/c 1200 31/10/21 By Balance c/d 1200
Total 1200 Total 1200
Car A/c
Date
Particular
s J.F
Amount
(£) Date
Particular
s J.F
Amount
(£)
01/10/21
To capital
A/c 12000 31/10/21
By
Balance
c/d 12000
Total 12000 12000
10

c) Trial Balance has 31st October 2020
11

d) Income Statement for the period ended 31st October 2021
12

e) Statement of Financial Position as at 31st October 2021
f) Letter To Lind regarding concern for drawings
To Linda
Subject: issues arising due to drawings that can concern small organization
From the assessment of the balance sheet prepared for the specified small organization is
conducting few irrelevant course of action. In addition to this, it can be articulated that
enterprise has capital which is reducing due to the drawings conducted by the owner. From
the formulation of the balance sheet it can be interpreted that there is withdrawal of drawing
which has been done for personal traveling of the owner. In the current era, there are several
requirements which are required to be accomplished by business for gaining success
(Darmayadi and et.al., 202). Small business possesses lack of capital and ability to
coordinate with this requirement of the changing circumstances so that higher profitability
and sustainability can be derived.
For meeting these requirements, it becomes essential for the enterprise to concentrate on
having significant processing by ensuring optimum utilization of the resources (Eunice,
13

2021). The current action taken by the owner for personal benefits is unethical. In order to
be successful in the competitive business situation it becomes crucial to get the
differentiation quality so that higher profitable position can be grabbed. For this purpose, it
is requested to the owner to avoid executing such course of action in turn greater ability to
coordinate with changing circumstances. On the basis of this information it can be
interpreted that enterprise need to emphasis for neglecting course of action like going for
holiday, etc. There should be much focus on ensuring that all the prevailing lacking areas
that can hinder performance of business can be mitigated. It will contribute in achieving
positive impact on the business by proper and optimum utilization of resources.
Sincerely,
PART B
a) computing ratios for Anne’s business for October 2021
Profitability ratios
Particulars Formula 2021
Gross Profit 5280
Sales revenue 5600
GP ratio Gross profit / sales * 100 94%
Particulars Formula 2021
Net profit 4300
Sales revenue 5600
NP ratio Net profit / sales * 100 77%
Liquidity ratios
Particulars Formula 2021
Current assets 15840
Current liabilities 5150
14

Current ratio
Current assets / current
liabilities 3.08
Particulars Formula 2021
Current assets 15840
Inventory 320
Current liabilities 5150
Quick ratio
Current assets - (stock
)/Current liabilities 3.014
Efficiency ratios
Particulars Formula 2021
Trade Receivable 150
Sales revenue 5600
Trade Receivable days ratio
Account receivable / sales
*365 9.78= 10 days
Particulars Formula 2021
COGS 360
trade payable 5150
Trade payable days COGS/trade payable *365 25.51
GP ratio NP ratio
Current
ratio Quick ratio
Trade
Receivable
days ratio
Trade
payable
days
Year 2021 94.00% 77.00% 3.08 3.014 10 25 days
15

b) Analysing performance of company by comparing and impact of Covid 19
From the evaluation of the computed figure it can be specified that there is company is having
good financial health as it concentrate on achieving significant insights regarding profitability,
liquidity and sustainability.
Gross profit is one of the crucial factor that is highly taken into practice by the
organization so that sound decision can be made. There are number of stakeholders like
investors, financial institutions, suppliers, etc who have interest so that specific decision can be
made. From the computed figure it can be interpreted that organization has good gross
profitability which is higher than the competitors average (Palepu and et.al., 2020). This is
reflecting company has made crucial measures to achieve such performance in turn objective of
sustainability can be achieved.
Net profitability is related with ascertaining ability of business to generate profits by
making greater sales. From the comparison of given outcome this can be analyzed that Anne's
business is enough capability to raise profitability by making sales. It is higher than the ideal
ratio which is 20% that aids in understanding that organization is good profitability as compared
to its competitors it is positive sign of growth & development.
Current ratio is associated with determining the ability to overcome short term liabilities
with help of current assets. It is widely utilized by users like creditors, lenders, suppliers, etc so
that significant processing to make sure strategic decision. From the evaluation of the computed
figure it can be said that outcome for the current year is higher than ideal ratio. It is reflecting
that specified company has greater outcome than the competitors' performance. By comparing
this it can be specified that particular enterprise possessing good ability to gain trustworthiness.
Acid test ratio is helpful in ascertaining how well cash & equivalent resources are taken into
process for overcoming current liabilities. From the above illustrated table, it can be said that h
particular firm is having 3.014 which is greater than competitors' quick ratio. On the basis of
this, it can be stated that Anne's performance is effective.
Account receivable ratio provides assistance in understanding the payment collection
period which aids in evaluating the liquidity position (Węgrzyńska, 2021). For the current
organizational credit policy for collecting the payment from the customer has been computed is
10 days. It can be considered as one of the effective policy to obtain the sufficient ability to
16

meet the requirements of business. The outcome is less than the competitors' policy which is
favorable sign for growth & development.
Account payable is one of the relevant metric that is used to measure the credibility of
organization. In addition to this, the derived value in days is 25 which is higher than duration
used by competitors. It is important of organization to decline it as adversely affect the
processing of company (Easton and et.al., 2018.). Competitors have higher efficiency in
overcoming their account payable which can discourage the suppliers to deal with Anne's
organization.
From the provided information it can be specified that specified enterprise possessing
higher ability to coordinate with requirement of business environment. On the basis of this, it
can be specified that COVID 19 is an adverse situation but has not given any impact on the
current performance of the company. The main reason behind this is that all ratios are showing
good results which has not affected by particular mentioned situation.
CONCLUSION
From the above study it can be summarized that recording business transaction is
essential for gaining accurate and relevant information. The current study has involved letter to
Linda by paying attention on organization performance and concern regarding declining
drawings so that effectiveness can be derived. It has comprised calculation of ratio and
evaluation of performance has been done. It can be specified that firm is having good financial
health as compared to competitors.
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REFERENCES
Books and Journals
Darmayadi, A and et.al., 2021. Information System for Transaction Activities in a
Company. International Journal of Education, Information Technology, and Others.
4(3). pp.338-344.
Easton, P.D. And et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Eunice, O. C., 2021. A Review of Management Earning and Real Transaction Manipulations Pre
and Post IFRS Adoption in Nigeria. Journal of Investment and Management. 10(1). pp.8-
12.
Palepu, K.G. And et.al., 2020. Business analysis and valuation: Using financial statements.
Cengage AU.
Węgrzyńska, M., 2021. Improving the Quality of Reporting Information in the Annual Financial
Statements of Farms: A Case Study of Poland and Spain. European Research Studies
Journal. 9(2). pp.1184-1197.
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