Recording Business Transactions: Financial Analysis Report, Oxford

This report provides a comprehensive analysis of recording business transactions for a new toy business started by Linda at Oxford University. The report meticulously details the recording of transactions in journal entries, ledgers, trial balance, income statement, and balance sheet. It includes a thorough analysis of financial ratios, such as net profit margin, gross profit margin, current ratio, acid test ratio, accounts receivable collection period, and accounts payable payment period, comparing Linda's business performance with the average competitor market. The report highlights the company's financial position, interpretations of the ratios, and concludes with recommendations for improvement, particularly in areas like net profit margin, current ratio, and accounts payable payment period to ensure the business's long-term sustainability and competitiveness in the market. It also addresses the handling of owner's drawings, distinguishing between personal and business-related expenses.

RECORDING BUSINESS
TRANSACTION

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART A...........................................................................................................................................3
A. JOURNAL..............................................................................................................................3
B. LEDGERS...............................................................................................................................5
C. TRIAL BALANCE.................................................................................................................8
D.INCOME STATEMENT.........................................................................................................9
E. BALANCE SHEET.................................................................................................................9
F. BRIEF ON LINDA'S DRAWINGS......................................................................................10
PART B..........................................................................................................................................10
INTERPRETATION..................................................................................................................11
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1

INTRODUCTION
The Recording of business transaction records all the transactions in the books of
accounts of any organization in many ways. These transactions are recorded in Journal entries,
Profit and Loss Statement, income statement and balance sheet of the firms (Rechtman, 2017). In
this report Linda started new business of selling toys in Oxford university and record the
transactions' for the first month. It also analysis the ratios of the company and interpretation
which shows the company efficiency and working of business. Whereas, Ratios are also
compared with the competitor market and shows Linda's business position in the market.
MAIN BODY.
PART A
A. JOURNAL
Dt. Transactions Dr. Cr.
01/10/20
Bank A/C................. Dr
To capital A/C..... Cr. £8,000 £8,000
Cash A/C................. Dr
To capital A/C...... Cr £5,200 £5,200
Van A/C................. Dr
To capital account...... Cr £3,000 £3,000
02/10/20
Laptop A/C................ Dr
To Bank A/C..... Cr
(Buying of laptop for Business use) £1,000 £1,000
04/10/20
Purchase A/C................ Dr
To Toys Ltd. A/C...... Cr.
(Credit Purchase of Goods) £2,450 £2,450
05/10/20
Bank A/C................ Dr
To Sales A/C...... Cr.
(cash sales of goods) £1,500 £1,500
12/10/20
Repairs A/C................ Dr
To Cash A/C...... Cr.
(Repaired laptop and paid in cash) £80 £80
18/10/20 Toys Ltd. A/C................ Dr £100 £100

To Purchase A/C...... Cr.
(Return of goods to Toys Ltd.)
21/10/20
Bank A/C ................ Dr
To Rent received A/C...... Cr.
(Rent Received) £500 £500
23/10/20
Cash A/C................ Dr
To Sales A/C...... Cr.
(Goods sold on cash) £1,500 £1,500
Fred A/C................ Dr
To Sales A/C...... Cr.
(Goods sold on Credit) £400 £400
23/10/20
Cash A/C ................ Dr
To Sales A/C...... Cr.
(Cash sales) £500 £500
24/10/20
Old car A/C................ Dr
To Bank A...... Cr.
(Second hand car purchase in auction) £2,500 £2,500
26/10/20
Wages A/C................ Dr
To Bank A/C...... Cr.
(Wages paid to Shopkeepers) £820 £820
30/10/20
Rent A/C................ Dr
To Bank A/C...... Cr.
(Business Rent paid) £1,000 £1,000
31/10/20
Drawings A/C................ Dr. *
To Bank A/C...... Cr.
(Drawing from bank) £1,600 £1,600
Total £30,150 £30,150
*Note:

Drawings: It is the amount which is drawn by the business owner and spend it in a particular
activity which is either personal or business purpose. The drawing accounts is used primarily for
those business which are either partnership or sole proprietors. The two types of drawings are
personal drawing or business drawings. Personal drawings' means which are used for the
personal drawings and which are deducted from the owners capitals. These transactions are not
related with business activities. Whereas, Business drawings are the funds which owner uses for
those activities which are related to business and treated as business expenses. They are related
to the business activities and spend for the business purpose only.
Linda had used business money as her personal expense for the travel to Florida, for
entertainment and not for her business used. However, this transaction must be shown in the
books as drawings in accounts and deducted from the capital of the business. If transactions are
related to business and Linda is travel for business purpose, then it will treat as the expense for
the business.
B. LEDGERS
Capital A/C.
Dt. Particulars Transaction
Amount
Dt. Particulars Transaction
Amount
31/10/20 To Drawings £1,600 01/10/20 By Bank £8,000
To Balance
Total C/f
£14600 By Cash £5,200
By Van £3,000
01/11/20 By Balance
Total B/d
£14,600
CASH A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital £5,200 12/10/20 By Repair £80
23/10/20 To Sales £1,500 31/10/20 By Balance £7120

Total C/f
To Sales £500
01/11/20 To Balance
Total B/d
£7,120
Bank A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital
A/C
£8,000 02/10/20 By Laptop £1,000
05/10/20 To Sales £1,500 24/10/20 By old car £2,500
21/10/20 To Rent
Receive
£500 26/10/20 By wages £820
01/11/20 To Balance
Total b/d
£3,080 30/10/20 By Rent Paid £1,000
31/10/20 By Drawings £1,600
By Balance
Total C/f
£3,080
LAPTOP A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
02/10/20 To Bank £1,000 31/10/20 By Balance c/f £1,000
01/11/20 To Balance
B/d
£1,000
TOYS LTD A/C.

Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
18/10/20 To Purchase £100 04/10/20 By Purchase £2,450
31/10/20 To Balance c/f £2,50 01/11/20 By Balance b/d £2,350
REPAIR A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
12/10/20 To Cash £80 31/10/20 By P/L £80
WAGE A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
26/10/20 To bank £820 31/10/20 By P&L £820
VAN A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
01/10/20 To Capital £3000 31/10/20 By Balance
C/f
£3000
01/11/20 To Balance
B/d
£3000
SALES A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
31/10/20 To P&L £3900 05/10/20 By Bank £1500

23/10/20 By Cash £1500
By Fred £400
By Bank £500
PURCHASE A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
04/10/20 To Toys Ltd. £2,450 18/10/20 By Toys Ltd. £100
31/10/20 By P&L £2,350
RENT RECIEVE A/C
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
31/10/20 To P&L £500 21/10/20 By Bank £500
RENT A/C.
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
30/10/20 To bank £1,000 31/10/20 By P&L £1,000
FRED A/C
Date Particulars Transaction
Amount
Date Particulars Transaction
Amount
23/10/20 To Sales £400 31/10/20 By balance C/f £400
01/11/20 To Balance
b/d
£400
DRAWING A/C.

Date Particulars Amount Date Particulars Amount
31/10/20 To bank £1,600 31/10/20 By Capital £1,600
SECOND HAND CAR A/C.
Date Particulars Amount Date Particulars Amount
24/10/20 To bank a/c £2,500 31/10/20 By balance c/f £2,500
01/11/20 To balance b/d £2,500
C. TRIAL BALANCE.
Trial balance as at 31 October 2020
Details Debit Credit
Capital £14,600
Cash £7,120
Bank £3,080
Laptop £1,000
Creditors (Toys Ltd.) £2,350
Repair £80
Wages £820
Van £3,000
Sales £3,900
Purchase £2,350
Rent receive £500
Rent Paid £1,000
Debtors £400
Second-hand car £2,500

Total Amount £21,350 £2,1350
D.INCOME STATEMENT
Income statement for the year ending 31'St October 2020.
Details Transactional Amount
Sales £3900
Less: Cost of good sold
Purchase £2350
Wages £820
Cl. Stock (£250)
(£2920)
Gross margin £980
Add: Rent received £500
Less:
Rent £1000
Repairs £80 (£1080)
Net Profit £400
E. BALANCE SHEET
Balance sheets as on 31st October 2020
Details Amount
ASSETS
Current Assets
Cash £7120
Bank £3080
Debtors £400
Closing Stock £250

Fixed Assets
Laptop £1000
Second-hand car £2500
Van £3000
TOTAL £17350
CAPITAL & LIABILITY
Capital £14600
Add: Net profit
£400
£15000
Current Liability
Creditors £2350
TOTAL £17350
F. BRIEF ON LINDA'S DRAWINGS.
The trip to Florida is treated as the personal drawings only, as the trip is related to the
personal nature and no business activities are carried by her. This will treated as the personal
drawings and is liable to deduct the money from the capital of business (Miller, and et.al., 2019).
If, the activities are related to the business purpose then it is treated as Withdrawal and
forwarded to P&L account.
PART B
1. Net Profit Margin = Revenue/ Sales×100
= 400/3900×100
=10.25%
2. Gross Profit Margin= Gross Profit/ Net Sales×100
= 980/3900×100

=25.1%
3. Current ratio=Total Liability/ Total asset
=2350/17350
=0.13
4. Acid Test Ratio= Current Asset- inventory/current liabilities
=10600-250/2350
=4.4
5. Account receivable collection Period= average account receivable / net credit sales×365
Average account receivable = Opening Debtor + closing Debtor /2
= 0+400/2
=£200
Account receivable collection Period= average account receivable / net credit sales×365
= 200/400×365
=182.5 days
6. Accounts payable payment period=Average account payable/Net Credit purchase×365
= Average account payable= Opening Credit+ closing Credit/2
=0+2350/2
=£1175
Accounts payable payment period=Average account payable/Net Credit purchase×365
=1175/2350/*365
=182.5
INTERPRETATION
1. Net Profit Margin: It is total percentage of profit margin from the total sales which is
actual profit of the company. Net profit is calculated after the deduction of Cost of good
sold, taxes and operating cost from the company(Bergner, and et, al., 2020). Linda shows