Financial Performance and Ratio Analysis Report for Linda's Business

This report provides a comprehensive financial analysis of Linda's business. It begins with journal entries and T-accounts, followed by the creation of a trial balance. The report then presents an income statement and balance sheet for the period ending October 31, 2020, detailing the financial position of the business. Part B focuses on ratio calculations, including net profit margin, gross profit margin, current ratio, quick ratio, and collection periods, offering insights into the company's financial health. The report concludes with an analysis of these ratios in comparison to competitors, highlighting key strengths and weaknesses. References to relevant financial literature are also included. This assignment, contributed by a student, is available on Desklib, a platform offering AI-powered study tools and resources.

Assessment

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Journal transactions of T- accounts:............................................................................................1
Balance the accounts and an opening balances:..........................................................................2
Trial balance:...............................................................................................................................5
Income statement for the period 31st Oct. 2020:.........................................................................6
Preparation of financial position 31st Oct. 2020:........................................................................6
PART-B...........................................................................................................................................7
Ratio calculation for Linda's business:........................................................................................7
Analysis of ratio in comparison to its competitors:.....................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business transaction refers to the goods and the services in which the transaction related
to the money are to be observed (Tillman, 2017). Business transaction are to be measured in
terms of money. The topic covered under this report are Journal Entry, ledger, trial balance ,
ratios of the Linda company in comparison to the competitors company.
PART A
Journal transactions 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
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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
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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
Balance the accounts and an 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
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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
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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
5

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
Loss 500
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 £
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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
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
7

Car 2500
Repair 80
Drawings 1600
Total 22550 Total 22550
Income statement for the period 31st Oct. 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
Preparation of financial position 31st Oct. 2020:
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
8

Car 2500
Debtor (Fred) 400
Closing Stock 250
Total 17350 Total 17350
PART-B
Ratio calculation for Linda's business:
Net profit
margin
31st Oct.2020
Net profit 400
Sales 3900
Ratio 0.1025641026
Gross profit
margin
31st Oct.2020
Gross profit 1800
Sales 3900
Ratio 0.4615384615
Current
Ratio
31st Oct.2020
Current assets 10850
Current Lia. 2350
Ratio 4.6170212766
Quick assets
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ratio
31st Oct.2020
Quick assets 10600
Current Lia. 2350
Ratio 4.5106382979
Debtors
collection period
Avg. Debtors 400
Net credit sales 3900
Ratio
37.435897435
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Creditors
collection period
Avg. Creditors 2350
Net credit
purchase 2350
Ratio 365
Current assets = Cash + bank + stock
= 3080 + 7120 + 400 + 250 = 10850
Quick Assets = Current assets – Stock
= 10850 -250 = 10600
Net Credit Purchase = Purchase – purchase return
= 2450 – 100 = 2350
Analysis of ratio in comparison to its competitors:
The ratio calculated of the Linda company and the competitors company are described
below as the net profit margin of the Linda company is 10% and the competitor is 31% that is
more this means the company has more sales and less expenses (Chow and Schoenbaum, 2020).
Gross profit margin of the company is 46% and the competitors is 54 which means the company
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has the enough cash for its business. Quick assets of the company is more as the company has
more cash to pay its liabilities. Company collection period is less than the competitors as it is less
effective (TORSELLO and WINKLER, 2020).
CONCLUSION
From the above report it has been concluded that the business transaction helps in
recording the transaction properly in an proper manner. From the above report various ratios are
calculated like the current ratio, quick ratio, net profit margin and many more so that the overall
efficiency of the company is calculated.
REFERENCES
Books & Journals
Chow, D. C. and Schoenbaum, T. J., 2020. International business transactions: problems, cases,
and materials. Wolters Kluwer Law & Business.
Tillman, S. B., 2017. Business Transactions and President Trump's Emoluments Problem.
TORSELLO, M. and WINKLER, M. M., 2020. Coronavirus-infected international business
transactions: A preliminary diagnosis. European Journal of Risk Regulation. 11(2). pp.396-401.
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