Recording Business Transactions Homework Assignment - BA30592E

This homework assignment delves into the core concepts of financial accounting, focusing on the process of recording business transactions. The assignment begins with an introduction to the importance of accounting information for decision-making, particularly within large organizations like Vodafone, emphasizing the role of financial statements. The solution then presents detailed journal entries for various transactions, followed by the creation of a general ledger and trial balance for a specific period. Furthermore, an income statement is prepared, demonstrating the ability to summarize financial data. The assignment also explores the advantages and disadvantages of accounting, as well as the potential impact of external factors, such as the COVID-19 pandemic, on a sole trader's income statement. The solution covers key accounting concepts, including journal entries, general ledgers, trial balances, and income statements, and provides practical examples to illustrate their application.

Recording Business
Transactions
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Table of Contents
Introduction......................................................................................................................................3
Assessment 1....................................................................................................................................3
Part 1.......................................................................................................................................3
Part 2.......................................................................................................................................5
Part 3.......................................................................................................................................6
Part 4.......................................................................................................................................9
References......................................................................................................................................11
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Introduction
For taking appropriate business decisions, management of a company requires data in form
of numbers that can be used to compare and be taken as basis for extracting other data.
Accounting helps management in generating that financial data which is required by
management and investors to take decisions (Zhong and Li, 2017). This assessment is based on
financial aspect of accounting which involves recording, classifying and summarising of
business transactions of financial nature in various books of accounts. In below mentioned
questions, journal entry, general ledger creation, entry and balancing, creating trial balance and
preparing income statement out from trial balance are covered. Also, covered are discussions
related to importance of accounts in decision making and impact of Covid-19 over income
statement of a sole trader.
Assessment 1
Part 1
A. Decision-making in Vodafone and need for accounting information to decision-makers
In large companies, there are various tiers of management which are responsible to take
different levels of complex decision-making in relation to various operations of business.
Vodafone follows a divisional structure according to geographies – one for Europe and other for
Africa, Middle East and Asia Pacific. It enables them to reduce layers and simplify managerial
governance. Both the divisions vest supreme decision-making power under their regional CEOs.
Consolidated decision-making for whole group and operations not covered under above
mentioned divisions will be controlled by Group Board of Directors i.e. Group CEO, CFO, CCO
and other executive and non-executive directors who held strategic decision-making powers with
them and delegate necessary authority and responsibilities to their subordinates. Decisions
required by senior management involves lots of comparisons, trend analysis, future estimations,
budget predictions and preparations, etc., all of which are carried out with the help of financial
information included in various books of accounts of company’s divisions and Group.
Financial accounts of a company include statement of financial performance, statement of
financial position and cash flow statement (Nicholls, 2018). Income Statement contain
information about various expenses incurred and revenues earned of significant nature,
assessment of which helps managers know leakages and surpluses. They also enable
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management to assess positioning of their assets and liabilities and whether they require any
adjustment to meet current situations or not. Cash flow statement contains information about
cash inflow and outflow during financial year, which helps company know whether it is facing
cash surplus or deficit to improve its cash management.
B. Advantages and disadvantages of accounting for accountant
Accounting involves recording, classifying and summarising transactions of financial
nature by an accountant (Dayanandan and et.al., 2016). Advantages and disadvantages of
recording transactions by an accountant are as below:
Advantages: Systematic recording – An accountant is responsible for recording and preparing books of
accounts in a systematic manner. These books of accounts are then used to prepare final
accounts which includes profit and loss account, Balance Sheet and cash flow statement.
Companies are required to prepare accounts as specified in Company Act and can be used
as an evidence in courts. Provides information to related parties – Financial accounts are reported by accountants
to senior management to accompany them in analysing and comparing information
mentioned in reports from previous year data and industry averages to make necessary
decisions. Other than management, this information is used by shareholders, creditors,
investors, government, regulatory bodies, etc.
Disadvantages: Personal bias – Although books of accounts are to be maintained according to standard
accounting principles and conventions, recording entries are dependent on accountant
who can have their personal biases while recording them such as not considering an entry
significant or recording on the basis of estimates which could be inaccurate (Edwards,
2015). Omission of non-monetary transactions – There are various transactions which are of
non-financial nature yet very important that they have significant impact over financial
transactions but considering the limitation imposed by accounting principle that only
financial nature transactions are to be recorded, they get omitted from being recorded.
This present an incomplete or misleading picture to management.
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Part 2
A. Month of February 2020 - Journal Entries for David Wise
Date Particulars Dr (in Pounds) Cr (in Pounds)
01/Feb Asma Ltd. (Vendor) Account_________ Dr.
To Office. Fixtures. Account…
(Unsuitable fixtures for office returned to
vendor)
350
350
04/Feb Bad. Debt. Account_________________Dr.
To S. Keyes (Debtor) Account...
(Debt amount from S. Keyes turned bad)
85
85
09/Feb Machinery.. Account.._______________Dr.
To Bank. Account…
To TS. Co.. Account…
(Machinery bought from vendor on part
payment remaining)
2300
200
2100
13/Feb Bank.. Account..____________________Dr.
Bad. Debt. Account… _______________Dr.
To S. Hill. Account…
(Only £220 recovered from insolvent debtor
in final settlement)
220
50
270
20/Feb Drawings. Account…_______________Dr.
To Purchases.. Account...
(Goods taken by David wise for personal
use)
180
180
26/Feb Drawings.. Account…_______________Dr.
To Insurance.. Account…
(Self insurance payment paid out of business
earlier, being correctly recorded)
85
85
28/Feb TS.. Co. Account…_________________Dr. 1050
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To Bank. Account…
(Half payment made to vendor)
1050
Part 3
A. General ledger of Pearce & Sons
Ledger Accounts
(for the month of Feb 20)
(Amounts in Pound)
Capital A/c…
Date Particulars Amount Date Particulars Amount
01/02 Bank Account… 21500
01/02 Van Account… 25000
01/02 Office. Fixture.
Account…
800
29th Feb Balance c/f 47300
Total 47300 Total 47300
Bank A/c…
Date Particulars Amount Date Particulars Amount
03/02 Cash Account… 1500 01/02 Capital Account… 21500
04/02 Van Account… 4800 02/02 Loan Account… 2500
19/02 Nissan. Company.
Account…
5200 25/02 Cash Account… 350
28/02 Office Fixture
Account…
620
29/02 Balance c/f 12230
Total 24350 Total 24350
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Van A/c…
Date Particulars Amount Date Particulars Amount
01/02 Capital Account… 25000
04/02 Bank Account… 4800
08/02 Nissan. Company.
Account…
5200
29/02 Balance c/f 35000
Total 35000 Total 35000
Quick Office Limited A/c…
Date Particulars Amount Date Particulars Amount
05/02 Office. Fixture.
Account…
1100
29/02 Balance c/f 1100
Total 1100 Total 1100
Cash A/c…
Date Particulars Amount Date Particulars Amount
15/02 Office. Fixture.
Account…
70 03/02 Bank Account… 1500
25/02 Bank Account… 350
29/02 Balance c/f 1080
Total 1500 Total 1500
Nissan Co. A/c…
Date Particulars Amount Date Particulars Amount
08/02 Van Account… 5200 19/02 Bank Account… 5200
Total 5200 Total 5200
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Office Fixture A/c…
Date Particulars Amount Date Particulars Amount
01/02 Capital Account… 800
05/02 Quick Office Limited
Account…
1100
15/02 Cash Account… 70
28/02 Bank Account… 620
29/02 Balance c/f 2590
Total 2590 Total 2590
Loan A/c…
Date Particulars Amount Date Particulars Amount
02/02 Bank Account… 2500
29/02 Balance c/f 2500
Total 2500 Total 2500
B. Trial Balance of Pearce & Sons as at 29th February
Trial Balance
(at the month ending 29/02/20)
(Amounts in £)
Particulars Dr. Cr.
Capital A/c___ 47300
Bank A/c____ 12230
Cash A/c____ 1080
Van A/c_____ 35000
Quick Office Limited A/c___ 1100
Office Fixture A/c____ 2590
Loan A/c____ 2500
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Total… 50900 50900
Part 4
A. Income Statement for the year ending 30th September 2020 of Airman Co.
Profit & Loss Account..
(for the year ending 30th Sept 20)
Particulars Amount Particulars Amount
Opening Stock___ 36000 Sales___ 80000
Purchases___ 150000 Less: Sales Returns.. -2000 78000
Less: Purchase Return. -600 149400 Closing Stock___ 120000
Carriage Inwards___ 720
Gross Profit c/f… 11880
Total___ 198000 Total___ 198000
Carriage Outwards___ 400 Gross Profit b/f… 11880
Motor Expenses___ 1200
Rent___ 5000
Telephone Charges__ 620
Wages. and. Salaries__ 32000
Insurance__ 830
Office Expenses__ 600
Sundry Expenses__ 300
Net loss… -29070
Total__ 11880 Total__ 11880
B. Possible impact of Covid-19 on Income statement of Airman Co.
Covid-19 induced lock-down was put in last part of March, effects of which are seen on
businesses and their profitability till today even after lifting of lockdown and multiple
government effort to recover the economy. Multiple effects were experienced by businesses from
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decrease in demand to risk of closure. Airman Co. is a sole trader business which means the
business is completely dependent on skills and networking of one person to survive the scare. It
is a small business which means it might not have so strong financial backing. Therefore,
reduced demand and disrupted supply chain must have caused more harm to it then large
companies with pools of saving to be used for contingency situations (Lachmann, Stefani and
Wöhrmann, 2015). Airman Co. must have made many changes in its operations to adapt and
adjust to the situation. For example, the business might have purchased less, by anticipating less
demand or to save cost of freight inwards. Or, may be the business was expecting good sales but
couldn’t sell much which is being reflected from lesser amount of carriage outward, and then had
to incur storage cost also, to safeguard closing inventory. Like all businesses, Airman Co. must
have fixed charges like rent, salary, insurance, etc. which can only be reduced to some extent.
These must have hurt their pockets as well. Sole Traders might have adjusted operations like
laying off or reducing salary structure, etc. There might be various possibilities of impact upon
business which can only be compared and predicted if previous years data was made available.
Although, this shall not be ignored that this year’s condition is special and not comparable with
last years data and also, length of impact of turbulences created by Covid-19 cannot be
estimated.
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References
Books and Journal
Dayanandan, A. and et.al., 2016. IFRS and accounting quality: legal origin, regional, and
disclosure impacts. International Journal of Accounting and Information Management.
Edwards, J.R., 2015. History of financial accounting theory in Britain. In The Routledge
Companion to Financial Accounting Theory (pp. 32-58). Routledge.
Lachmann, M., Stefani, U. and Wöhrmann, A., 2015. Fair value accounting for liabilities:
Presentation format of credit risk changes and individual information
processing. Accounting, Organizations and Society. 41. pp.21-38.
Nicholls, A., 2018. A general theory of social impact accounting: Materiality, uncertainty and
empowerment. Journal of Social Entrepreneurship. 9(2). pp.132-153.
Zhong, Y. and Li, W., 2017. Accounting conservatism: A literature review. Australian
Accounting Review. 27(2). pp.195-213.
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