Business Transaction Analysis: Financial Statement Preparation

This report provides a comprehensive analysis of recording business transactions for Anne York's business. It includes the preparation of journal entries, ledger accounts, a trial balance, and an income statement, along with an explanation of drawings. Key accounting ratios such as net profit margin, gross profit margin, current ratio, and acid-test ratio are computed and interpreted to assess the company's financial performance. The report also addresses the impact of the global pandemic on Anne's business, highlighting the challenges and offering recommendations for recovery and growth. This document explains the vital steps in financial accounting and analysis, providing a detailed overview of the business's financial health and potential strategies for improvement. Desklib offers a variety of solved assignments and past papers for students.

Recording business
transactions.

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
1. Preparing journal entries in the books. ..............................................................................1
2. Representing entries in the ledgers accounts. ....................................................................3
3.Computing the Trial Balance...............................................................................................7
4.Constructing the Income Statement of Anne york.............................................................7
5.Providing details of the Balance Sheet...............................................................................8
6. Explaining the concept of drawings in case of Anne to Linda. .........................................8
TASK 2 ...........................................................................................................................................9
1. Determining the accounting ratios of the business. ...........................................................9
2.Impact of Global pandemic on the business of Anne........................................................10
CONCLUSION..............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
Business transactions includes all the financial and non financial transactions which takes
place to earn profits in the organisation. There are various short term as well as long term
decisions which are required to be taken by the organisation. The decisions can be related to
finance and operations of the business (Alles and Gray, 2020). This report includes the
preparation of journal entries for the business of Anne york. There are several books of accounts
which represent the financial health of the organisation. It also includes preparation of separate
ledger accounts from the journals. These transactions are further transferred to make trial balance
and income statement. The concept of drawing in case of Anne is also explained in this report.
The accounting ratios of the business is also computed. Financial ratios are categorised into
various types such as liquidity ratios,profitability ratios, activity ratios and solvency ratios. The
ratios helps to judge the financial performance of the company and forecast the future
performance on the basis of current performance. The global pandemic has adverse impact on
the business of Anne which is also encompassed in the given report. The report prepared below
also helps to find ways and methods that would help in overcoming obstacles and issues. It also
helps to bring company back on track and generated required revenues that would help it to
enhance its growth and expansion (Djaballah and Fortin, 2021).
MAIN BODY
TASK 1
1. Preparing journal entries in the books.
JOURNAL ENTRIES
Date Particulars Debit Credit
01/10/21 Bank
Cash
Flat
Car
Capital
(Business being started with cash, flat and a car)
10000
4800
45000
12000
71800
1

02/10/21 Purchases
Home Ltd
(goods of the firm i.e., furniture being purchased on
credit from Home ltd.)
5400
5400
04/10/21 Computer
Printer
Bank
(Computer and printer being bought for cash)
800
200
1000
05/10/21 Bank
Sales
(Goods worth 2800 being sold)
2800
2800
12/10/21 Repair Expense
Cash
(repair expenses incurred for repairs done in printer)
110
110
18/10/21 Home Ltd.
Purchases
(Furniture of wroth 250 being returned to home ltd.)
250
250
21/10/21 Bank
Rent Income
(Rent being received by the organisation)
800
800
23/10/21 Rayan
Cash
Sales
(sold goods to Rayan worth 2100, out of which, 1800
have been received by the business)
300
1800
2100
23/10/21 Cash
Sales
(sold goods to David for cash)
700 700
2

24/10/21 Laptop
Bank
(A new laptop has been bought for official use.
1700
1700
26/10/21 Wages
Bank
(shopkeeper has been paid monthly wages)
820
820
30/10/21 Rent Expenses
Bank
(a place being rented by the business and paid expenses
for same)
850
850
31/10/21 Drawings
Bank
(Money being paid by the business for a personal
expense of the owner)
1200
1200
31/10/21 Cash
Rayan
(Rayan, the debtor of the business paid for the debt)
150
150
2. Representing entries in the ledgers accounts.
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
3

31/10/21 Drawings 1200
31/10/21 Balance c/d 8030
13600 13600
1/11/21 Balance b/d 8030
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
1/11/21 Balance b/d 7340
Flat Account
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 45000 31/10/21 Balance c/d 45000
45000 45000
1/11/21 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
1/11/21 Balance b/d 12000
4

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
1/11/21 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
1/11/21 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
1/11/21 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
5

800 800
1/11/21 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
1/11/21 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
1/11/21 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
1/11/21 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
6

300 300
1/11/21 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 Balacne C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 5600
1/11/21 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
1/11/21 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
1/11/21 Balance b/d 820
Drawings Account
Date Particulars Ref Amount Date Particulars Ref Amount
7

31/10/21 Bank 1200 31/10/21 Balance c/d 1200
1200 1200
1/11/21 Balance b/d 1200
3.Computing the 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
8

4.Constructing the Income Statement of Anne york.
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
5.Providing details of the Balance Sheet
BALANCE SHEET
Liabilities Amount Assets Amount
Creditors (Home Ltd.) 5150 Stock 320
Capital 70390 Bank 8030
Cash 7340
Debtor (Rayan) 150
Flat 45000
Car 12000
Computer 800
9

Printer 200
Laptop 1700
Total 75540 Total 75540
6. Explaining the concept of drawings in case of Anne to Linda.
To,
Miss Linda,
Drawings are the amount withdrawn from the business for personal use. The owner of
the business or person who is withdrawing expenses has to pay interest on drawings. The
amount of 1200 is withdrawn from the business and it is considered as an outflow from the
business. These are expenses of the organisation (Harasheh and et.al., 2021). The accounting
principle of separate legal entity state that the owner of the business is having separate identity
from its business. Therefore, interest on drawings must be paid by the owner of the business.
The Anne withdraw 1200 for booking hotel and flight trip of Scotland. The owner can withdraw
cash or even goods from the business. The journal entry for the drawing is debit the drawings
account and credit cash account (Imoniana, Soares and Domingos, 2018). In case of drawings
of stock, the stock will be credited in place of cash.
TASK 2
1. Determining the accounting ratios of the business.
Meaning- Financial ratios is a magnitude of numerical values extracted from the financial
statements of the company (Manda, Suyaman and Batu, 2020). The various ratios of Business
are as follows -
 Net Profit Margin = ( Net profit / Net Sales ) * 100 = ( - 210 / 5600 ) * 100 = - 3.75 %
 Gross Profit Margin = ( Gross Profit / Net Sales) * 100 = ( 770 / 5600 ) * 100 = 13.75
%
 Current Ratio = Current Assets / Current Liabilities (Wiratama, and Asri, 2020) =
15480 / 5150 = 3.01
10