Accounting Assignment: Recording Transactions and Financial Statements

This accounting assignment provides a comprehensive solution to a case study involving a sole trader named Anne York. The assignment details the recording of various business transactions, including purchases, sales, expenses, and capital contributions. The solution includes the preparation of T-accounts, a trial balance, an income statement, and a statement of financial position. Furthermore, the assignment delves into ratio calculations, such as net profit margin, gross profit margin, current ratio, acid-test ratio, accounts receivable collection period, and accounts payable payment period, offering insights into the company's profitability, liquidity, and efficiency. A letter to the owner explaining the concept of drawings is also included. Finally, the assignment concludes with a commentary on the company's performance, comparing its results with industry benchmarks, and discussing the impact of the Covid-19 pandemic on the company's financial ratios. The assignment provides a clear and concise analysis of the company's financial health and performance.

Recording business
transactions

Table of Contents
PART A...........................................................................................................................................3
(a) & (b) Preparation of T account for the year ended 31st October, 2021..................................3
(c) Preparation of Trail Balance as at 31st October, 2021............................................................8
(d) Preparation of Income Statement for the year ended 31st October, 2021..............................9
(e) Preparation of statement of financial position as at 31st October, 2021...............................10
(f) Letter to Anne York..............................................................................................................11
PART B.........................................................................................................................................11
(b) Comment on performance of company................................................................................12
REFERENCES................................................................................................................................1

PART A
(a) & (b) Preparation of T account for the year ended 31st October, 2021
1. Drawing A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
31/10 To bank 1200
31/10 By balance c/f 1200
1200 1200
31/10 To balance b/d 1200
2. Rent Expense A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
30/10 To bank 850
30/10 By balance c/f 850
850 850
30/10 To balance b/d 850
3. Wages A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
26/10 To bank 820
31/10 By balance c/f 820
820 820
31/10 To balance b/d 820
4. New Laptop A/c
Date Particulars Amount Date Particulars Amount

(2021) (2021)
24/10 To bank 1700
31/10 By balance c/f 1700
1700 1700
31/10 To balance b/d 1700
5. Rayan A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
23/10 To sales 300 31/10 By cash 150
31/10 By balance c/f 150
300 300
31/10 To balance b/d 150
6. Rent Income A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
21/10 By bank 800
31/10 To balance c/f 800
800 800
31/10 By balance b/d 800
7. Purchase returned A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
18/10 By Home ltd 250

31/10 To balance c/f 250
250 250
31/10 By balance b/d 250
8. Repairing Expense A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
12/10 To cash 110
31/10 By balance c/f 110
110 110
31/10 To balance b/d 110
9. Sales A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
5/10 By bank 2800
23/10 By cash 1800
23/10 By Rayan 300
23/10 By cash 700
31/10 To balance c/f 5600
5600 5600
31/10 By balance b/d 5600
10. Printer A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
4/10 To bank 200
31/10 By balance c/f 200

200 200
31/10 To balance b/d 200
11. Computer A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
4/10 To bank 800
31/10 By balance c/f 800
800 800
31/10 To balance c/d 800
12. Home Ltd A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
18/10 To purchase returned 250 2/10 By purchase 5400
31/10 To balance c/f 5150
5400 5400
31/10 By balance b/d 5150
13. Purchase A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
2/10 To Home Ltd. 5400
31/10 By balance c/f 5400
5400 5400
31/10 To balance b/d 5400
14. Capital A/c

Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
1/10 By bank 10000
By cash 4800
By flat 45000
By car 12000
31/10 To balance c/f 71800
71800 71800
31/10 By balance b/d 71800
15. Cash A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
1/10 To capital 4800 12/10 By repairing expenses 110
23/10 To sales 1800
23/10 To sales 700
31/10 To Rayan 150
31/10 By balance c/f 7340
7450 7450
31/10 To balance b/d 7340
16. Flat A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
1/10 To capital 45000
31/10 By balance c/f 45000
45000 45000
31/10 To balance b/d 45000

17. Car A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
1/10 To capital 12000
31/10 By balance c/f 12000
12000 12000
31/10 To balance b/d 12000
18. Bank A/c
Date
(2021) Particulars Amount
Date
(2021) Particulars Amount
1/10 To capital 10000 4/10 By computer 800
5/10 To Sales 2800 By printer 200
21/10 To Rent 800 24/10 By new laptop 1700
26/10 By wages 820
30/10 By rental expenses 850
31/10 By drawing 1200
31/10 By balance c/f 8030
13600 13600
31/10 To balance b/d 8030
(c) Preparation of Trail Balance as at 31st October, 2021
Particulars Debit Credit
Drawing A/c 1200
Rent Expense A/c 850
Wages A/c 820
New Laptop A/c 1700

Rayan A/c 150
Rent Income A/c 800
Purchase Return A/c 250
Repairing expenses A/c 110
Sales A/c 5600
Printer A/c 200
Computer A/c 800
Home Ltd A/c (Creditor) 5150
Purchase A/c 5400
Capital A/c 71800
Cash A/c 7340
Flat A/c 45000
Car A/c 12000
Bank A/c 8030
Total 83600 83600
(d) Preparation of Income Statement for the year ended 31st October, 2021
Particulars Details Amount
Sales revenue 5600
Less cost of sales:
Purchase 5400
Less Purchase returned 250
Less Closing stock 320
Total 4830
Gross Profit 770
Add Operating income
Rental Income 800
1570

Less operating expenses:
Repairing expense 110
Wages 820
Rental expenses 850
Total 1780
Net Profit -210
(e) Preparation of statement of financial position as at 31st October, 2021
Particulars Cost
Accumulated
Depreciation Net Value
ASSETS
Non-current assets:
Flat 45000 - 45000
Car 12000 - 12000
Computer 800 - 800
Printer 200 - 200
New Laptop 1700 - 1700
Total non-current assets 59700
Current assets:
Bank 8030
Cash 7340
Debtors 150
Inventory 320
Total assets 75540
Current liabilities:
Creditors 5150

Net Assets 70390
Equities:
Capital 71800
Less Drawings 1200
Less Net Loss 210
70390
(f) Letter to Anne York
To Anne York
Sole Trader
Subject: Regrading concept of drawings from business
Respected Mam,
It is to inform you that the amount of £1200 should be consider as drawings because owner has
withdrawn it from business account for their personal expenses. The business is separate legal
entity and distinct from its owner (Schwartz, 2020). Hence, any amount withdrawn by owner
from business for their personal expenses should be consider as drawing and subtracted from
capital of business. It should be recorded in balance sheet not in P&L a/c as recording in P&L
will reduce net income of business that ultimately leads to manipulation of accounts in order to
pay low tax on income.
Your Sincerely,
Accounts Manager
PART B
(a) Ratio Calculations
Particulars Formula Result

Net Profit margin Net Profit / Net sales *100
-4%
-210/5600 * 100
Gross Profit margin Gross Profit / Net Sales * 100
14%
770/5600 * 100
Current ratio Current assets/ Current liabilities
3.08
15840/5150
Acid-test ratio Quick assets / Current liabilities
3.01
15520/5150
Accounts receivable collection
period
Accounts receivable / Net sales * 365
days
10
150/5600 * 365
Accounts payable payment period
Accounts payable / cost of sales * 365
days
389
5150/4830 * 365
(b) Comment on performance of company
Profitability:
On the basis of above result and its comparison with competitors, it is identified that the
profitability performance of Anne business is poor as compared to competitors. In order to
improve the same, Anne should enhance its sales revenue and reduce its cost of sales (Kadim
Sunardi and Husain, 2020).
Liquidity:
As per the above calculation, it has been analysed that the liquidity performance of Anne
business is better as compared to its competitors (Heo and et.al., 2020). It means the business
have the capability to pay off its current obligation with the use of its current assets only. They
need not to take loan from the market to pay its current liabilities.
Efficiency:
The efficiency ratio of Anne business indicate that they pay its supplier on time but fails
to collect the amount from debtors on time as compared to its competitors. In order to improve
its debtor collection days, the business should adopt some strategies such as early payment
discount, buy one get one free offers etc.
Impact of Covid-19 on average ratio: