Financial Accounting: Recording and Analyzing Business Transactions

This assignment presents a comprehensive solution to an accounting problem, focusing on the recording of business transactions and subsequent financial analysis. It begins with detailed journal entries, followed by the creation of T-accounts to balance the accounts and determine opening balances. A trial balance is then prepared, leading to the construction of an income statement and a statement of financial position for Linda's business. Furthermore, the assignment includes a letter to Linda, offering insights into financial matters. Part B involves a thorough ratio calculation for Linda's business, comparing its performance against a competitor. The report analyzes key financial ratios, providing a conclusion based on the findings and referencing relevant academic sources.

Recording Business
Transactions

Table of Contents
ASSESSMENT 2.............................................................................................................................1
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Journal transactions of T- accounts:............................................................................................1
Balance the accounts and an opening balances:..........................................................................2
Trial balance:...............................................................................................................................6
Income statement for the period 31st Oct. 2020:.........................................................................6
Preparation of financial position 31st Oct. 2020:........................................................................7
Letter to Linda..............................................................................................................................7
PART B............................................................................................................................................7
Ratio calculation for Linda's business:........................................................................................7
Analysis of the ratio in comparison to its competitor..................................................................9
CONCLUSION '..............................................................................................................................9
REFERENCES..............................................................................................................................10

ASSESSMENT 2
INTRODUCTION
Financial statements means records of the financial data which is written in the books of
accounts for measure the performance of the company. Financial information is used by the
investors and analyst to make predictions for the future direction and also used in evaluating of
the financial health and wealth of the company. It is the main source for the decision maker for
making decisions regarding the investing. In the financial statement there is the prepare of the
balance sheet, income statements and statement of cash flow in the given time period. In tis
assessment there is the record of the double entry transactions and evaluation of the statement of
financial position (Ghezzi and Cavallo, 2020). Apart from this there is the interpretation of ratio
analyses with their competitor and examine their performance.
PART A
Journal transactions of T- accounts:
JOURNAL ENTRIES
S.NO Date Particulars L.F £ £
2020
1 1'Oct Cash A/c..... Dr. 5,200
Bank A/c ….. Dr. 8,000
Van A/c ….. Dr. 3,000
To Capital A/c...... 16,200
( Being Capital invest into business)
2 2'Oct Laptop A/c... Dr. 1,000
To Bank A/c.... 1,000
( Being Purchase laptop by cheque)
3 4'Oct Purchase A/c …. Dr. 2,450
To Toys LTD. A/c......... 2,450
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( Being goods purchased on Credit
basis)
4 5'Oct Bank A/c... Dr. 1,500
To Sales A/c........ 1,500
(Being goods sold by cheque)
5 12'Oct Repair A/c..... Dr. 80
To Cash A/c..... 80
( Being Repair laptop with cash)
6 18'Oct Toys LTD. A/c... Dr. 100
To Purchase Return A/c..... 100
(Being purchase Return made)
7 21'Oct Bank A/c... Dr. 500
To rent A/c...... 500
(Being Rent received in cash)
8 23'Oct Fred A/c .. Dr. 400
Cash A/c ….. Dr. 1,500
To Sales A/c......... 1,900
(Being Goods sold in cash )
9 23'Oct Cash A/c Dr. 500
To Sales A/c 500
(Being Goods sold)
10 24'Oct Car A/c Dr. 2,500
To Bank A/c 2,500
(Being Car purchased in car)
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11 26'Oct Wages A/c.. Dr. 820
To Bank A/c....... 820
(Being Wages paid by cheque)
12 30'Oct Drawings A/c Dr. 1,600
To Bank A/c 1,600
( Being amount withdraw for personal
use (Rosa and et.al., 2017))
13 31'Oct
Rent A/c..
Dr. 1,000
To Bank A/c........ 1,000
(Being Rent Paid in cash )
Total 30,150 30,150
Balance the accounts and an opening balances:
Ledger
BANK ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
1 ' Oct To capital... 8,000 2' Oct By laptop..... 1,000
5' Oct To sales.... 1,500 24'Oct By car…. 2,500
21' Oct To capital..... 500 26'Oct By Wages... 820
30'Oct By drawings.... 1,600
31'Oct By rent.... 100
31'Oct By balance c/d.... 3,080
Total... 10,000 Total.... 10,000
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01/11/20 To balance b/d.... 3,080
CASH ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
1 ' Oct To capital..... 5200 12' Oct By Repair... 80
23'Oct To sales.... 1500 31'Oct By balance c/d.... 7,120
To sales..... 500
Total..... 7200 Total.... 7,200
1'Oct To balance b/d..... 7120
VAN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
1' Oct To capital..... 3000 31' Oct By balance c/d.... 3,000
Total...... 3000 Total..... 3,000
1'Oct To balance b/d.... 3000
CAPITAL ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
31' Oct To balance c/d..... 16200 1' Oct By Bank...... 8,000
By Cash....... 5,200
By Van......... 3,000
Total...... 16200 Total..... 16,200
1' Oct
By Balance
b/d..... 16,200
4

LAPTOP ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
2' Oct To bank ….... 1000 31' Oct By balance c/d..... 1,000
Total..... 1000 Total.... 1,000
1' Oct To balance b/d..... 1000
PURCHASE ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
4' Oct To toys Ltd...... 2450 31' Oct By Trading.... 2,450
Total..... 2450 Total..... 2,450
TOYS LTD ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
18' Oct
To Purchase
Return ..…. 100 4' Oct By purchase.... 2,450
31' Oct To balance c/d.... 2350
Total..... 2450 Total.... 2,450
1' Oct By Balance b/d.... 2,350
SALES ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
31' Oct To Trading.... 3900 05' Oct By Bank.... 1,500
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23' Oct By fred.... 400
By Cash..... 1,500
By Cash..... 500
Total.... 3900 Total..... 3,900
PURCHASE RETURN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
31' Oct To Trading..... 100 18' Oct By toys Ltd..... 100
Total.... 100 Total.... 100
RENT ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
31' Oct To bank..... 1000 21' Oct By Bank.... 500
31' Oct
By Profit and
Loss..... 500
Total.... 1000 Total..... 1,000
FRED'S ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
23' Oct To sales..... 400 31, Oct By balance c/d..... 400
Total.... 400 Total..... 400
400
WAGES ACCOUNT
Dr.
6

CR.
Date Particulars J.F £ Date Particulars J.F 0
26' Oct To sales..... 820 31'Oct
By Profit and
Loss..... 820
Total.... 820 Total..... 820
CAR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
24'Oct To bank …... 2500 31'Oct By balance c/d..... 2,500
Total..... 2500 Total..... 2,500
01'Oct To balance b/d..... 2500
REPAIR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
12'Oct To cash..... 80 31'Oct
By Profit and
Loss...... 80
Total..... 80 Total..... 80
DRAWINGS ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F 0
30'Oct To bank..... 1600
By Profit and
Loss.... 1,600
Total...... 1,600 Total..... 1,600
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Trial balance:
Trial balance:
Debit Trail Balance Credit
Particulars £.( amount) Particulars £( amount)
Bank A/C.. 3,080 Capital A/C..... 16,200
Cash A/C.... 7,120 Toys Ltd. A/C.... 2,350
Van A/C...... 3,000 Sales A/C..... 3,900
Laptop A/C..... 1,000 Purchase Return A/C... 100
Purchase A/C..... 2,450
Rent A/C..... 500
Fred A/C..... 400
Wages A/C....... 820
Repair A/C..... 80
Car A/C...... 2,500
Drawings A/C.... 1,600
Total 22,550 Total 22,550
Income statement for the period 31st Oct. 2020:
Dr Trading Account Cr.
Particulars £. Particulars £.
Purchase A/C.... 2,450 Sales A/C.... 3,900
Gross Profit..... 1,800 Closing Stock A/C.... 250
Purchase Return A/C... 100
Total 4,250 Total 4,250
Dr Profit and Loss Account Cr.
Particulars £. Particulars £.
Rent A/C.... 500 Gross Profit..... 1,800
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Wages A/C..... 820
Repair A/C...... 80
Net Profit 400
Total 1,800 Total 1,800
Preparation of financial position 31st Oct. 2020:
Dr Balance sheet Credit
Liabilities £. Assets £.
Capital........ 16200 Bank..... 3,080
(-)Drawings..... 1600 14,600 Cash..... 7,120
Creditor (Toys Ltd)... 2,350 Van...... 3,000
Net Profit..... 400 Laptop..... 1,000
Car..... 2,500
Debtor (Fred)...... 400
Closing Stock. 250
Total.... 17,350 Total...... 17,350
Letter to Linda
Brief letter
To Linda,
It has been found that1600 pounds which you have withdrawal as drawings cannot be
classified as business expenses because these are the drawings for the business because she used
for its own use for going to holiday. So it is written in the drawings not in the business expenses
(Hofmann, Samp and Urbach, 2020).
Financial advisor
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PART B
Ratio calculation for Linda's business:
Net
profit margin
31st Oct.2020
Net profit..... 400
Sales..... 3,900
Ratio 10.00%
Gross profit
margin
31st Oct.2020
Gross profit..... 1,800
Sales...... 3,900
Ratio 46.00%
Current
Ratio
31st Oct.2020
Current
assets..... 10,850
Current
Liabilities...... 2,350
Ratio 4.6
Quick assets
ratio
31st Oct.2020
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Quick assets..... 10,600
Current
Liabilities....... 2,350
Ratio 4.5
Debtors
collection
period
Average
Debtors.... 400
Net credit
sales........ 3,900
Ratio 37.4
Creditors
collection
period
Average
Creditors..... 2,350
Net credit
purchased....... 2,350
Ratio 365
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Analysis of the ratio in comparison to its competitor
Ratio analysis means analysis of the company performance to know the solvency,
liquidity and profitability position of the business. It is calculated by the amount which is find in
profit and loss, balance sheet (McJohn and McJohn, 2016). There is the comparison of the
performance of the two company such as Linda Ltd with their competitor. In the Competitor
entity the net profit margin show the ratio is 31% and Linda Ltd. Has only 10% margin for the
specific period which states that they have large ratio than this company because there is increase
in revenue and decline in the regular expenses. For the gross profit margin in the Linda and its
competitor it has been seen that Linda Ltd. Has only 46% margin and its competitor has 54%
which means that it has earn less revenue in this year. For the Linda Ltd. Current ratio of this
year is 4.61% but the ratio of their competitor is 2.;87 which means that their current ratio is
more than their competitor which mean that there is proper management of the assets is done and
they pay their whole debt also. In the Average collection period, Linda have less collection
period than their competitor which mean that their collection is done less and in the average
payable period it has large period for this compare to its competitor. From the above analysis it
has been clear that competitor company is best than this company in terms of performance and
their efficiency (Wekesa, 2018).
CONCLUSION '
From the above report it has been concluded that recording business transactions is play a
vital role in the financial statements because in financial statements all the information is
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recorded in the accurate manner which is very useful for the individual in terms of analysing and
interpretation. In this assessment, there is the recording of transaction in the income statement
and analysis of the ratio with their competitor.
REFERENCES
Books and Journals
Ghezzi, A. and Cavallo, A., 2020. Agile business model innovation in digital entrepreneurship:
Lean startup approaches.Journal of business research.110. pp.519-537.
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Hofmann, P., Samp, C. and Urbach, N., 2020. Robotic process automation.Electronic Markets.
30(1). pp.99-106.
McJohn, S. M. and McJohn, I., 2016. The commercial law of bitcoin and blockchain
transactions.Uniform Commercial Code Law Journal. 47(2). pp.187-222.
Rosa, M. L. and et.al., 2017. Business process variability modeling: A survey.ACM Computing
Surveys (CSUR). 50(1). pp.1-45.
Wekesa, P. S., 2018.Developing a complementary mobile & web-based application for
recording and sharing electricity customer meter reading and power incidence data.
case Study: Langata Constituency, Nairobi County, Kenya(Doctoral dissertation).
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