Analysis of Business Transactions: Financial Statements and Ratios

This report provides a comprehensive analysis of business transactions, starting with the preparation of journal entries and T-accounts. It covers the balancing of accounts, creation of a trial balance, and the preparation of an income statement and balance sheet. The report then delves into ratio analysis, including liquidity and profitability ratios, and compares the organization's performance to competitors. The analysis includes calculations for current ratio, quick ratio, net profit margin, and gross profit margin. The report concludes by summarizing the findings and emphasizing the importance of financial statements in evaluating an organization's performance and efficiency in the market. The report also includes journal entries, ledger accounts, and financial statements.

Recording
Business
Transactions

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Preparation of Journal entries of T-accounts .............................................................................3
Balancing of accounts and opening balances..............................................................................5
Preparation of Trial Balance.......................................................................................................8
Income statement of month ending 31st October 2020..............................................................8
Financial Statements of the organisation....................................................................................9
PART B............................................................................................................................................9
Ratio analysis of the given organisation.....................................................................................9
Analysing above ratios in comparison with competitors..........................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14
Books and journals....................................................................................................................14

INTRODUCTION
Business transactions consists of various business activities including sales, purchases,
rent paid, etc. It is conducted generally between two parties where one is purchaser and other is
seller. Such exchange is transacted in exchange of money. In short business transactions are
those events which are used to ascertain the factors which are responsible for organisation's
current financial position (Amro, 2019). These transactions are retained in books of accounts
and summary is provided through annual financial reports. Business transactions also includes
various non-exchange transactions like fire loss, depreciation, etc. such transactions must result
in monetary value. It is therefore termed as economic activity which is recorded in company's
financial statements. Every business events is initially recorded by preparation of journal entries
in such regard.
In this respective report, formulation of various financial statements and business
accounts will be discussed. This will include Journal entries, Ledger accounts, ratio analysis,
balance sheet, income statement as well as trial balance. These statements will be prepared in
order to analyse company's financial position as well as its level of profitability and productivity
throughout its operations.
PART A
Preparation of Journal entries of T-accounts
JOURNAL ENTRIES
S.NO Date Particulars L.F £ £
2020
1 01/10/20 Cash A/c Dr. 5200
Bank A/c Dr. 8000
Van A/c Dr. 3000
To Capital A/c 16200
(Capital invested into business)
2 02/10/20 Laptop A/c Dr. 1000
To Bank A/c 1000

( Purchased laptop by cheque)
3 04/10/20 Purchase A/c Dr. 2450
To Toys LTD. A/c 2450
(Goods purchased on Credit basis)
4 05/10/20 Bank A/c Dr. 1500
To Sales A/c 1500
(Goods sold by cheque)
5 12/10/20 Repair A/c Dr. 80
To Cash A/c 80
(Laptop Repair with cash)
6 18/10/20
Toys LTD. A/c
Dr. 100
To Purchase Return A/c 100
(Goods Return)
7 21/10/20 Bank A/c Dr. 500
To rent A/c 500
(Rent received)
8 23/10/20 Fred A/c Dr. 400
Cash A/c Dr. 1500
To Sales A/c 1900
(Goods sold)
9 23/10/20 Cash A/c Dr. 500
To Sales A/c 500
(Goods sold)

10 24/10/20
Car A/c
Dr. 2500
To Bank A/c 2500
(Car purchased
11 26/10/20 Wages A/c Dr. 820
To Bank A/c 820
(Wages paid)
12 30/10/20 Drawings A/c Dr. 1600
To Bank A/c 1600
(Amount withdraw for personal use)
13 31/10/20 Rent A/c Dr. 1000
To Bank A/c 1000
(Rent Paid)
Total 30150 30150

Balancing of accounts and opening balances
Ledger
BANK ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
01/10/20 To capital 8000 02/10/20 By laptop 1000
05/10/20 To sales 1500 24/10/20 By car 2500
21/10/20 To capital 500 26/10/20 By Wages 820
30/10/20 By drawings 1600
31/10/20 By rent 100
31/12/20 By balance c/d 3080
Total 10000 Total 10000
01/11/20 To balance b/d 3080
CASH ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
01/10/20 To capital 5200 12/10/20 By Repair 80
23/10/20 To sales 1500 31/10/20 By balance c/d 7120
To sales 500
Total 7200 Total 7200
01/11/20 To balance b/d 7120
VAN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £

01/10/20 To capital 3000 31/10/20 By balance c/d 3000
Total 3000 Total 3000
01/11/20 To balance b/d 3000
CAPITAL ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To balance c/d 16200 01/10/20 By Bank 8000
By Cash 5200
By Van 3000
Total 16200 Total 16200
01/11/20 By Balance b/d 16200
LAPTOP ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
02/10/20 To bank 1000 31/10/20 By balance c/d 1000
Total 1000 Total 1000
01/11/20 To balance b/d 1000
PURCHASE ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
04/10/20 To toys ltd 2450 31/10/20 By Trading 2450
Total 2450 Total 2450
TOYS LTD ACCOUNT
Dr.

CR.
Date Particulars J.F £ Date Particulars J.F £
18/10/20
To Purchase
Return 100 04/10/20 By purchase 2450
31/10/20 To balance c/d 2350
Total 2450 Total 2450
01/11/20 By Balance b/d 2350
SALES ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To Trading 3900 05/10/20 By Bank 1500
23/10/20 By fred 400
By Cash 1500
By Cash 500
Total 3900 Total 3900
PURCHASE RETURN ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To Trading 100 18/10/20 By toys ltd. 100
Total 100 Total 100
RENT ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
31/10/20 To bank 1000 21/10/20 By Bank 500
31/10/20 By Profit and 500

Loss
Total 1000 Total 1000
FRED'S ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
23/10/20 To sales 400 31/10/20 By balance c/d 400
Total 400 Total 400
400
WAGES ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
26/10/20 To sales 820 31/10/20
By Profit and
Loss 820
Total 820 Total 820
CAR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
24/10/20 To bank 2500 31/10/20 By balance c/d 2500
Total 2500 Total 2500
01/11/20 To balance b/d 2500
REPAIR ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £

12/10/20 To cash 80 31/10/20
By Profit and
Loss 80
Total 80 Total 80
DRAWINGS ACCOUNT
Dr.
CR.
Date Particulars J.F £ Date Particulars J.F £
30/10/20 To bank 1600
By Profit and
Loss 1600
Total 1600 Toal 1600
Preparation of Trial Balance
Trial balance:
Debit Trail Balance Credit
Particulars £.( amount) Particulars £( amount)
Bank 3080 Capital 16200
Cash 7120 Toys Ltd. 2350
Van 3000 Sales 3900
Laptop 1000 Purchase Return 100
Purchase 2450
Rent 500
Fred 400
Wages 820
Car 2500
Repair 80
Drawings 1600
Total 22550 Total 22550

Income statement of month ending 31st October 2020
Dr Trading Account Cr.
Particulars £. Particulars Cr.
Purchase 2450 Sales 3900
Gross Profit 1800 Closing Stock 250
Purchase Return 100
Total 4250 Total 4250
Dr Profit and Loss Account Cr.
Particulars £. Particulars £
Rent 500 Gross Profit 1800
Wages 820
Repair 80
Net Profit 400
Total 1800 Total 1800
Financial Statements of the organisation
Dr Balance sheet Cr.
Liabilities £. Assets Cr.
Capital 16200 Bank 3080
(-)Drawings 1600 14600 Cash 7120
Creditor (Toys Ltd) 2350 Van 3000
Net Profit 400 Laptop 1000
Car 2500
Debtor (Fred) 400
Closing Stock 250

Total 17350 Total 17350
PART B
Ratio analysis of the given organisation
Competitors Average
• Net profit margin 31%
Net profit
margin
31st Oct.2020
Net profit 400
Sales 3900
Ratio 0.1025641026
• Gross profit margin 54%
Gross profit
margin
31st Oct.2020
Gross profit 1800
Sales 3900
Ratio 0.4615384615
• Current ratio 2.87x
Current
Ratio
31st Oct.2020
Current assets 10850
Current Lia. 2350
Ratio 4.6170212766