Business Transactions and Accounting Principles - Finance Assignment

This accounting assignment provides a comprehensive overview of recording business transactions and preparing financial statements. It begins with an introduction to accounting and its importance in decision-making, using Amazon.com, Inc. as an example. The assignment then delves into the advantages and disadvantages of accounting information for accountants. Part 2 focuses on journal entries, demonstrating the recording of various transactions for David Wise. Part 3 presents general ledgers and a trial balance for Pearce & Sons. Finally, Part 4 includes a profit & loss account for Airman Co. and discusses the possible implications of the COVID-19 pandemic on the company's financial performance, considering the challenges faced by a sole trader in the reselling business during an unprecedented economic situation. The assignment covers key accounting concepts and their practical application.

Recording Business
Transactions
1

Table of Contents
Introduction......................................................................................................................................3
Assessment 1....................................................................................................................................3
Part 1.......................................................................................................................................3
Part 2.......................................................................................................................................4
Part 3.......................................................................................................................................6
Part 4.......................................................................................................................................9
References......................................................................................................................................11
2

Introduction
Accounting is a function in an organisation which is concerned with recording and reporting
of business transactions. It has to be carried out according to specified accounting principles and
standards so that uniformity is maintained in accounts of same organisation over the years and
comparability can be assured across all organisations in industry (Warren and Farmer, 2020).
Below mentioned assessment is based on various theoretical and practical aspects of accounting
function. First part includes theory question of importance of accounting information for
decision making in a large company. Amazon.com, Inc has been taken as example of large
company. Next parts involve preparation of various sample books of accounts like Journal,
ledger, trial balance and income statement. In last part, possible economic implications of lock-
down induced because of Covid-19 over income statement of a sole traders have been discussed.
Assessment 1
Part 1
A. Decision-makers of Amazon.com, Inc. and their need of accounting information for
decision-making
Large companies are involved in activities which are multi-dimensional. Therefore, they
cannot vest decision-making power in single person or designation. Generally, decision-making
powers in a big company are delegated amongst various tiers of their management (Hyndman,
2016). For example, strategic decision-making power lies with top management while power to
get work done according to strategy is with middle level managers. This is also followed by
Amazon which provides the extent of decision-making powers as per the designation provided in
their hierarchical organisational structure. Company follows diversification strategy and keeps
striving to have a dynamic structure where at top-most position is its CEO Jeff Bezos as group
CEO. Under him, comes CEOs of various services, processes and divisions and then, other board
members. Then comes various lower managerial levels which have very restricted decision-
making power, restricted to carrying out the strategic decisions made by the board members.
Senior management is involved in strategic decision-making which are based on data that
are to be extracted and processed out of the financial accounts prepared by accounting and
finance department of the company. Not only financial data, management requires various non-
financial data also to make complete and correct decision. Such non-financial data is also to be
3

converted in accounting figures to be used by management. Management takes information from
income statement, Balance Sheet and cash flow statement to draw figures for comparisons, trend
analysis, future projections, etc.
B. Advantages and disadvantages of accounting of information for an accountant
Accountants enter financial transactions into various books of accounts to prepare
financial accounts (Mio, 2016). Below mentioned are various advantages and disadvantages of
preparing books of accounts by an accountant:
Advantages: Complete recording – It is responsibility of accountants to enter all the financial
transactions of significant nature in appropriate books of accounts of the business in a
systematic manner. From these books of accounts are then prepared financial statements
of the business. These financial accounts are then used by management to draw
conclusions as to what changes are required in the operations. Verified source of information – Financial accounts are prepared by accountants on the
standard basis provided in GAAP – Generally Accepted Accounting Principles. Also,
accounts of large organisations are verified by independent auditors and such verified
information are reliable to be used by management, investors, regulatory bodies, etc.
These are also accepted as evidences by courts in litigation involving the company.
Disadvantages: Historical cost – Accountants have to record transactions like fixed assets purchases at
original cost and these are not revalued in books according to market values of the assets
(Marin, 2015). These values then keep showing at historical cost which presents an
uncomplete and misleading picture to the management who can take inaccurate decisions
on the basis of such incomplete picture. Personal bias – While recording transactions in books of accounts, accountants have to
make various assumptions which might be inaccurate and results in incorrect or
incomplete information entered in system. Considering a transaction worthy of being
called as significant and entering into books of accounts are also dependent on
accountant. Involuntarily, it can cause a miss-reporting in business.
Part 2
A. Journal Entries for David Wise for the month of Feb 20
4

Journal of David Wise
(for the month of February 2020)
Date Particulars Dr (in GBP) Cr (in GBP)
01st Feb Asma Limited (Vendor) A/c………….. Dr.
To Office. Fixtures. A/c___
(Entry recorded for unsuitable office fixtures
returned to vendor Asma Limited)
350.00
350.00
04th Feb Bad. Debt. A/c…………….__________Dr.
To Debtor - S. Keyes A/c….
(Entry recorded for debt taken by debtor - S.
Keyes turning bad)
85.00
85.00
09th Feb Machinery.. A/c____________________Dr.
To Bank… A/c…
To TS. Company. A/c…
(Entry recorded for machinery purchased
from vendor – TS Co on part cash and part
credit)
2300.00
200.00
2100.00
13th Feb Bank. A/c____..____________________Dr.
Bad_ Debt_ A/c___… _______________Dr.
To Debtor-S Hill_ A/c_…
(Entry recorded for final payment received
from insolvent debtor – S Hill)
220.00
50.00
270.00
20th Feb Drawings_ A/c____…_______________Dr.
To Purchases_ A/c__
(Entry recorded for inventory taken away by
proprietor for personal use)
180.00
180.00
26th Feb Drawings_ A/c____…_______________Dr.
To Insurance_ A/c__…
(Entry recorded for personal insurance
85.00
85.00
5

premium paid out of business earlier now
corrected)
28th Feb TS.Company_(Vendor) A/c___________Dr.
To Bank_ A/c__
(Entry recorded for payment made to vendor
– half account settled)
1050.00
1050.00
Part 3
A. General ledger of Pearce & Sons
Ledger Accounts of Pearce & Sons
(for the month of February 2020)
(Amounts in GBP)
Capital Account__
Date Particulars Amount Date Particulars Amount
01st Feb Bank_ A/c_ 21500.00
01st Feb Van_ A/c_ 25000.00
01st Feb Office_Fixture_
A/c_
800.00
29th Feb Balance_c/f_ 47300.00
Total_ 47300.00 Total_ 47300.00
Bank Account__
Date Particulars Amount Date Particulars Amount
03rd Feb Cash_ A/c_ 1500.00 01st Feb Capital_ A/c 21500.00
04th Feb Van_ A/c_ 4800.00 02nd Feb Loan_ A/c_ 2500.00
19th Feb Nissan_ Co._ A/c_ 5200.00 25th Feb Cash_A/c_ 350.00
28th Feb Office_Fixture_A/c_ 620.00
29th Feb Balance_c/f_ 12230.00
6

Total_ 24350.00 Total_ 24350.00
Van Account__
Date Particulars Amount Date Particulars Amount
01st Feb Capital_A/c_ 25000.00
04th Feb Bank_A/c_ 4800.00
08th Feb Nissan_Co._A/c_ 5200.00
29th Feb Balance_c/f_ 35000.00
Total_ 35000.00 Total_ 35000.00
Quick_Office_Ltd_Account_
Date Particulars Amount Date Particulars Amount
05th Feb Office_Fixture_A/c_ 1100.00
29th Feb Balance_c/f_ 1100.00
Total_ 1100.00 Total_ 1100.00
Cash_Account_
Date Particulars Amount Date Particulars Amount
15th Feb Office_Fixture_A/c_ 70.00 03rd Feb Bank_A/c_ 1500.00
25th Feb Bank_A/c_ 350.00
29th Feb Balance_c/f_ 1080.00
Total_ 1500.00 Total_ 1500.00
Nissan_Company_Account_
Date Particulars Amount Date Particulars Amount
08th Feb Van_A/c_ 5200.00 19th Feb Bank_A/c_ 5200.00
Total_ 5200.00 Total_ 5200.00
7

Office_Fixture_Account_
Date Particulars Amount Date Particulars Amount
01st Feb Capital_A/c_ 800.00
05th Feb Quick_Office_Ltd_
A/c_
1100.00
15th Feb Cash_A/c_ 70.00
28th Feb Bank_A/c_ 620.00
29th Feb Balance_c/f_ 2590.00
Total_ 2590.00 Total_ 2590.00
Loan_Account_
Date Particulars Amount Date Particulars Amount
02nd Fb Bank_A/c_ 2500.00
29th Feb Balance_c/f_ 2500.00
Total_ 2500.00 Total_ 2500.00
B. Trial Balance of Pearce & Sons as at 29th Feb, 2020
Trial Balance of Pearce & Sons
(at the month ending 29th Feb 20)
(Amounts in GBP)
Particulars Debit Credit
Capital_Account_ 47300.00
Bank_Account_ 12230.00
Cash_Account_ 1080.00
Van_Account_ 35000.00
Quick_Office_Ltd_Account_ 1100.00
Office_Fixture_Account_ 2590.00
Loan_Account_ 2500.00
Total_ 50900.00 50900.00
8

Part 4
A. Profit & Loss Account of Airman Co. for the year ending 30th Sept. 20
Profit&Loss Account_
(for the year ending 30th September 2020)
Particulars Amount Particulars Amount
Opening_Stock_ 36000.00 Sales_ 80000
Purchases_ 150000 Less: Sales_Returns. -2000 78000.00
Less: Return_Inwards_ -600 149400.0 Closing_Stock_ 120000.00
Carriage_Inwards_ 720.00
Gross_Profit_c/f_ 11880.00
Total_ 198000.0 Total_ 198000.00
Carriage_Outwards_ 400.00 Gross_Profit_b/f_ 11880.00
Motor_Expenses_ 1200.00
Rent_ 5000.00
Telephone_Charges_ 620.00
Wages.and.Salaries_ 32000.00
Insurance_ 830.00
Office_Expenses_ 600.00
Sundry_Expenses_ 300.00
Net_Profit/Loss_ -29070.0
Total_ 11880.00 Total_ 11880.00
B. Possible implications of Covid-19 on Profit & Loss A/c of Airman Co.
As per given information, Airman Company is a sole trader involved in reselling business. It
follows an accounting year of October to September. Therefore, it can be said that most of the
effects or turbulences seen by business because of Covid-19 were in only second half of the
accounting period. Although, impact of Covid-19 is not yet over and is possible to continue
having negative impact over financial performance of next year. This year’s economic situation
9

had never happened before, so there is no comparable data. Hence, it is not right to compare this
year’s loss with past 10 years profits (Prescott and Vann, 2015).
To talk about implication on this year’s financial performance, it has to be pre-agreed that
concerned business is a small business and would not be having much of the retained earnings or
if there is any strong financial background, is not reported. Although, since trader is operating for
more than a decade, it must be having some stability that has been able to stop its fatal failure of
business being forced to close. It is bound to have been affected from reduction in demand,
disruption in supply chain, increased operating costs, detrimental fixed cost payments, etc. It
must have made necessary arrangements to safeguard itself from all the worse possibilities such
as ordering less products to incur less ordering cost and saving from increased storage cost
because of less demand. Business must have incurred increased in expenses like spending more
on promotional activities and might had to made necessary changes like reducing operations
level or laying off staff, possible reduction in salary and other expenses, etc.
10

References
Books and Journal
Hyndman, N., 2016. Accrual accounting, politicians and the UK—with the benefit of
hindsight. Public Money & Management. 36(7). pp.477-479.
Marin, R.M., 2015. The Possibility of Developing a Sustainable Financial-Accounting
Information System. Valahian Journal of Economic Studies. 6(1).
Mio, C. ed., 2016. Integrated reporting: A new accounting disclosure. Springer.
Prescott, G.L. and Vann, C.E., 2015. The effects of national culture on financial statement
comparability: A survey of research findings. Journal of Corporate Accounting &
Finance. 26(6). pp.37-45.
Warren, C.S. and Farmer, A., 2020. Survey of accounting. Cengage Learning.
11