Recording Business Transactions: Journal Entries, Ledgers, and Ratios

This assignment solution provides a detailed analysis of recording business transactions. It begins with journal entries for various transactions, including purchases, sales, and payments, followed by the creation of ledger accounts for each item. The assignment then presents the income statement and balance sheet, calculating key financial ratios such as gross profit margin, net profit margin, current ratio, and acid-test ratio. Furthermore, it includes an interpretation of these ratios, comparing the company's performance to industry averages and highlighting areas for improvement, such as managing payable and receivable days. The document concludes with a list of references. This assignment is designed to help students understand the fundamental principles of financial accounting and analysis.

Recording Business Transactions

Table of Contents
MAIN BODY.......................................................................................................................................3
PART A............................................................................................................................................3
PART B............................................................................................................................................9
REFERENCES...................................................................................................................................10

MAIN BODY
PART A
Journal entries
Date Particulars DR.(£) CR.(£)
01/09/19 Bank a/c 12000
Cash a/c 3200
Computer a/c 1000
To capital a/c 16200
(business commenced)
02/09/19 Purchase a/c 900
To David a/c 900
(purchase on credit)
03/09/19 Computer a/c 2000
To bank a/c 2000
(new computer purchased)
05/09/19 Bank a/c 500
To sales a/c 500
(sales of goods)
06/09/19 Purchase a/c 400
To Cash a/c 400
(cash purchase)
06/09/19 Rent a/c 600
To bank a/c 600
(rent paid)
12/09/19 Repair a/c 100
To Cash a/c 100
(computer repair charge)
18/09/19 David A/c 100
To purchase Return a/c 100
(goods returned to David)
21/09/19 Bank a/c 300
To Rent received a/c 300
(rent received)
23/09/19 Joseph a/c 400
To sales a/c 400
(credit sales)
23/09/19 Cash a/c 1500
To sales a/c 1500

(cash sales)
24/09/19 Car a/c 1000
To bank a/c 1000
(car purchased)
30/09/19 Wages a/c 700
To Cash a/c 700
(wages paid by cash)
30/09/19 Drawing a/c 450
To Cash a/c 450
(cash withdrawn)
25150 25150
Ledger
accounts
Bank a/c
Date Particulars DR(£) Date Particulars CR(£)
01/09/19 To capital 12000 03/09/19
By
computer 2000
21/09/19 To rent rec. 300 06/09/19 By rent 600
24/09/19 To car 1000 30/09/19
By balance
c/f 10700
13300 13300
Cash a/c
Date Particulars DR(£) Date Particulars CR(£)
01/09/19 To capital 3200 06/09/19 By purchase 400
23/09/19 To sales 1500 12/09/19 By repair 100
30/09/19 By wages 700
30/09/19 By drawing 450
30/09/19
By balance
c/f 3050
4700 4700
Computer
a/c
Date Particulars DR(£) Date Particulars CR(£)
01/09/19 To capital 1000
03/09/19 To bank 2000 30/09/19
By balance
c/f 3000
3000 3000

Capital a/c
Date Particulars DR(£) Date Particulars CR(£)
01/09/19 By bank 12000
01/09/19 By cash 3200
30/09/19 To bal c/f 16200 01/09/19
By
computer 1000
16200 16200
Purchase
a/c
Date Particulars DR(£) Date Particulars CR(£)
02/09/19 To David 900
06/09/19 To cash 400 30/09/19
By balance
c/f 1300
1300 1300
David a/c
Date Particulars DR(£) Date Particulars CR(£)
18/09/19
To purchase
return 100 02/09/19 By purchase 900
30/09/19 To bal c/f 800
900 900
Sales a/c
Date Particulars DR(£) Date Particulars CR(£)
05/09/19 By bank 500
23/09/19 By Joseph 400
30/09/19 To bal c/f 2400 23/09/19 By cash 1500
2400 2400
Rent a/c
Date Particulars DR(£) Date Particulars CR(£)
06/09/19 To bank 600 30/09/19
By balance
c/f 600
600 600
Repair a/c
Date Particulars DR(£) Date Particulars CR(£)
12/09/19 To cash 100 30/09/19
By balance
c/f 100
100 100
Purchase
return a/c
Date Particulars DR(£) Date Particulars CR(£)
30/09/19 To bal c/f 100 18/09/19 By David 100

100 100
Rent
received a/c
Date Particulars DR(£) Date Particulars CR(£)
30/09/19 To Bal c/f 300 21/09/19 By bank 300
300 300
Joseph a/c
Date Particulars DR(£) Date Particulars CR(£)
23/09/19 To sales 400 30/09/19
By balance
c/f 400
400 400
Car a/c
Date Particulars DR(£) Date Particulars CR(£)
24/09/19 To bank 1000 30/09/19
By balance
c/f 1000
1000 1000
Wages a/c
Date Particulars DR(£) Date Particulars CR(£)
30/09/19 To cash 700 30/09/19
By balance
c/f 700
700 700
Drawing
a/c
Date Particulars DR(£) Date Particulars CR(£)
30/09/19 To cash 450 30/09/19
By balance
c/f 450
450 450
Particulars DR(£) CR(£)
Bank 10700
Cash 3050
Computer 3000
Capital 16200
Purchase 1300
Sales 2400
Payables 800
Inventory 250
Receivables 400

Rent 600
Repair 100
Purchase return 100
Rent received 300
Car 1000
Wages 700
Drawing 450
Suspense 1250
Total 21300 21300
Income statement
£
Revenue 2400
COGS 950
Gross profit 1450
Rental income 300
Administrative expense 1400
Operating profit 350
Finance cost 0
Net profit 350
Balance sheet
£
Asset
Non current asset
Equipments 4000
Total 4000
Current asset
Inventory 250
Receivables 400
Bank 10700
Cash 3050
Total 14400
Total assets 18400
Equity and Liabilities
Equity
Share capital 15750
Retained earning 350
Total 16100
Current liabilities
Payables 800
Suspense 1500
Total 2300

Total Equity and Liabilities 18400
Ratio analysis
Gross profit 1450
Revenue 2400
GP margin= GP/Revenue*100
60.4166666
667
Net profit 50
Revenue 2400
NP margin=NP/Revenue*100
2.08333333
33
Current asset 14100
Current liabilities 2300
Current ratio= CA/CL
6.13043478
26
Current asset 14100
Current liabilities-inventory 2050
Acid test Ratio= CA/Quick liabilities
6.87804878
05
Receivables 400
Revenue 2400
Receivable days=rec/rev*365
60.8333333
333
Payables 800
Purchases 1300
Payables days= payable/pur*365
224.615384
6154
Competitors Average
Gross profit margin 65%
Net profit margin 28%
Current ratio 2.10
Acid test ratio 1.50
Accounts receivable collection period 47 days
Accounts payable payment period 65 days
PART B
Interpretation of the ratio analysis
Gross Profit margin
The gross profit margin of James business is 5% less than the competitors average, this means that
the company is performing below the average market.(Bergner, 2018) This is probably because

James has just started his business and he has to purchase goods for the supply in the market so this
increases the cost of the goods sold and he has not able to sell all his goods so the revenue has not
increased. Therefore, there is a 5% gap in James business.
Net Profit margin
The net profit margin is very low compared to the competitors average, this is because the company
has a lot of operating expenses to be incurred as James have just started which has led to decrease in
the net profit resulting into very low NP margin.(Garrity, 2015)
Current Ratio
The current ratio is just 3 times the competitors average which shows that the company is not using
its cash and bank balance to pay their liabilities, or they must invest their liquid asset in order to
generate income from them.(Reid, 2018)
Acid test Ratio
Again this ratio is 4 time the competitors average which means that the company is not using their
liquid assets properly. They need to improve this ratio so that the overall performance can be
improved.
Receivable days
The company receivable days are more than the competitors average by 13 days which means that
the debtors are paying there debts late, the company need to ask their debtor to pay as soon as
possible because the company need cash to run their business as they are new in the market.
Payables days
These are very bad for James business as the payable days are 179 days more than the competitors
average. This is because the company has not using there cash and bank balance to pay out their
liabilities. This may not be good in the long term because if this continues than the company would
not be able to get credit from their suppliers.(Prihanto, 2019)

REFERENCES
Books and journals
1. Prihanto, H., and et.al., 2019, November. INTRODUCTION OF ONLINE-BASED
ACCOUNTING RECORDING SYSTEM FOR SMALL AND MEDIUM ENTERPRISES.
In ICCD (Vol. 2, No. 1, pp. 43-47).
2. Reid, W., 2018. The meaning of company accounts. Routledge.
3. Bergner, R.A., and et.al., 2018. Method and system for recording point to point transaction
processing. U.S. Patent Application 15/914,326.
4. Garrity, S.M., and et.al., 2015. Systems and methods for securing extranet transactions. U.S.
Patent 8,972,740.