Business Transactions: Journal Entries, Ledgers & Financial Ratios

This report details the recording of business transactions through journal entries, preparation of general ledgers, trial balance, income statement, and balance sheet. It includes an explanation of drawings made by the owner, calculation of accounting ratios such as net profit margin, gross profit margin, current ratio, and acid test ratio, along with their interpretations. The report further examines the impact of COVID-19 on the business's profitability and suggests measures for managing labor and adapting to market changes. It concludes that proper recording of transactions is crucial for assessing a business's financial position and making informed decisions, emphasizing the importance of adapting strategies in response to economic challenges.

RECORDING
BUSINESS
TRANSACTIONS

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Recording business related transactions through journal entries................................................3
Preparation of General ledgers....................................................................................................5
Preparation of Trial balance........................................................................................................9
Preparation of Income Statement................................................................................................9
Construction of Balance sheet...................................................................................................10
Write a letter to Linda explaining reasons behind Drawings made by Anne............................11
TASK 2..........................................................................................................................................11
Present Calculation of Different Accounting ratios of business...............................................11
What impact has been observed in reference to COVID-19 relating to profits generated by
business.....................................................................................................................................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
The report prepared below reflects how business transactions helps in carrying out
activities and operations in a company (Burke, 2019). It can be defined as a process that involves
various steps such as at initial step it explains examining of transactions occurred and in what
ways they are going to affect the organisation. Further it involves which accounts must be
credited and what must be debited. It also explains basic accounting procedure that determines
nature of transactions so far recorded. Transactions are said to be recorded in form of journals
that help to have a clearer picture as where the cash has been used and what are the areas that
contributed in generation of cash. It is helpful in preparation of financial records and statements
that reflect profit earned, revenue generated and incurred losses from transactions. Ratio analysis
also helps to calculate financial values through which useful interpretations could be made. It
also helps to examine the effect and impact observed by company due to unpredictable condition
of COVID-19. It also provides useful guidance that states ideas that would help to give effective
plans for handling such issues and problems (Lang and et.al., 2018).
TASK
Recording business related transactions through journal entries.
JOURNAL ENTRIES
Date Particulars Debit Credit
01/10/21 Bank
Cash
Flat
Car
Capital
(Business commenced with Bank, cash, flat and car)
10000
4800
45000
12000
71800
02/10/21 Purchases
Home Ltd
(Purchase of furniture processed on credit from
Home Ltd.)
5400
5400
04/10/21 Computer 800

Printer
Bank
(Purchase of computer and printer made in exchange
of cash)
200
1000
05/10/21 Bank
Sales
(Sale of goods being made for 2800)
2800
2800
12/10/21 Repair Expense
Cash
(Repair expenses charged for printer (Kim and et.al.,
2020)
110
110
18/10/21 Home Ltd.
Purchases
(Furniture retuned to Home Ltd. having Worth of
250)
250
250
21/10/21 Bank
Rent income
(Rent of 800 collected by company)
800
800
23/10/21 Rayan
Cash
Sales
(Sale of goods made to Rayan having worth 2100
where 1800 have been collected by organisation
(Massaro, 2021)
300
1800
2100
23/10/21 Cash
Sales
(Sale of goods made for cash to David)
700
700
24/10/21 Laptop
Bank
1700
1700

(New laptop being purchased by company for official
purposes)
26/10/21 Wages
Bank
(Wages paid to part time shopkeeper through cheque)
820
820
30/10/21 Rent expenses
Bank
(Rent paid through bank for office purposes)
850
850
31/10/21 Drawings
Bank
(Personal Expenses paid by owner through bank)
1200
1200
31/10/21 Cash
Rayan
(Cash received from Rayan)
150
150
Preparation of 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 5150
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
01/11/21 Balance b/d 5150
Computer Account
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 800 31/10/21 Balance c/d 800
800 800
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 50
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
01/11/21 Balance b/d 150
Sales Account
Date Particulars Ref Amount Date Particulars Ref Amount

05/10/21 Bank 2800
23/10/21 Rayan 300
31/10/21 Balance C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 5600
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 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
01/11/21 Balance b/d 1200

Preparation of 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
Preparation of 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
Construction of 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
Write a letter to Linda explaining reasons behind Drawings made by Anne.
To,
Miss Anne,
Drawings can be explained as amount that has been withdrawn by a individual or
business (Holtzman, 2022). It can also be counted as outflow of cash from firm. Thus in this
case the drawings are being processed by owner of the company therefore it is required for them
to pay interest on them as well. Drawings carried out by Anne for amount 1200 that are being
paid through business bank account were put into use by Anne for her personal expenses that
includes her holiday and hotel related expenses (Chamekh and et.al., 2018). Such expenses
were not done in context of business related activities.