Business Transaction Recording: Financial Statement Analysis Report

This report provides a detailed analysis of business transaction recording, encompassing double-entry recordings, T-accounts, and the extraction of a trial balance. It includes the preparation of an income statement and a statement of financial position, offering a comprehensive view of the financial performance and position of a business. Furthermore, the report delves into ratio analysis, comparing Linda's business performance with industry benchmarks, including net profit ratio, gross profit ratio, current ratio, quick ratio, and accounts receivable collection period. A brief letter addressing drawings in a small business context is also included. The report provides a complete financial analysis of the business, helping in understanding financial statements and making informed decisions. The report is a valuable resource for students to learn the financial analysis of a business.

Recording Business transaction

INTRODUCTION
Recording of business transaction is one of the important step which includes multiple
steps and procedures. It is essential to record all financial transaction which is consist of all
monetary transaction. It helps in building and maintaining of financial statements of a company
which is require to analyse and determine financial position. A company uses varied formats for
recording financial transactions such as journal entries, ledger accounts, trial balance, profit and
loss account and balance sheet, comparative analysis etc (Adamyk, 2017). In this report it is
consist of trial balance, ratio calculation and an analysis of competitors position.
PART A
Writing double entry recording of transactions in T-accounts
Date Particulars L.F
Debit
Amount
Credit
Amount
2020
01/10/20 Bank a/c dr 8000
Cash a/c dr 5200
Van a/c dr 3000
To Capital a/c 16200
(Being business started)
02/10/20 Laptop a/c dr 1000
To Bank a/c 1000
(Being laptop purchased)

04/10/20 Purchase a/c dr 2450
To Toy Ltd 2450
(Being purchase made)
05/10/20 Bank a/c dr 1500
To Sales a/c 1500
(Being sales made)
12/10/20 Repairs a/c dr 80
To Cash a/c 80
(Being cash paid for
repairs)
18/10/20 Toy Ltd a/c dr 100
To Purchase Return
a/c 100
(Being purchase return
made)
21/10/20 Bank a/c dr 500
To Rent a/c 500
(Being rent received)
23/10/20 Cash a/c dr 1500

Fred a/c dr 400
To Sales a/c 1900
(Being sales made)
23/10/20 Cash a/c dr 500
To Sales a/c 500
(Being sales made)
24/10/20 Car a/c dr 2500
To Bank a/c 2500
(Being car purchased)
26/10/20 Wages a/c dr 820
To Bank a/c 820
(Being wages paid)
30/10/20 Rent a/c dr 1000
To Bank a/c 1000
(Being rent paid)
31/10/20 drawings a/c dr 1600
To Bank a/c 1600
(Being drawings made)

b) Balance the accounts and bring down an opening balance
Bank account
Date Particular J.F Amount Date Particular J.F Amount
…...To capital 8000
…...To sales 1500 …....By laptop 1000
…...To rent
received 500 …...By Car 2500
…...By wages 820
…...By Rent 1000
…...By drawing 1600
….By balance c/d 3080
Total 10000 Total 10000
Rent received account
Date Particular J.F Amount Date Particular J.F Amount
…...By bank 500
500 500
Cash account
Date Particular J.F Amount Date Particular J.F Amount
…...To capital 5200 By repair 80
…...To sales 1500 By balance c/d 7120
To sales 500
7200 7200
Fred a/c

Date Particular J.F Amount Date Particular J.F Amount
…...To sales 400
…...By balance
b/d 400
Purchase a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To Toys
limited 2450
…...By balance
c/d 2450
Toys limited a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To purchase
return 100
…...By
purchase 2450
…...To balance
b/d 2350
2450 2450
Rent a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To Bank 1000
…...By
balance b/d 1000
Van a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
capital 3000
…...By
balance b/d 3000

Capital a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To balance
b/d 16200 …...By bank 8000
…...By cash 5200
…...By van 3000
Sales a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To balance
b/d 3900 …...By bank 1500
…...By cash 1500
…...By Fred 400
…...By cash 500
Laptop a/c
Date Particular J.F Amount Date Particular J.F Amount
..To bank 1000
…...By balance
b/d 1000
Car a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 2500
…...By balance
b/d 2500
drawing a/c

Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 1600
…...By balance
b/d 1600
Wages a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 820
…...By balance
b/d 820
Repair a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
cash 80
…...By balance
b/d 80
c) Extract a Trial Balance as at 31st October 2020
Trial balance is a statement in which all the general ledger accounts are recorded
including accounts relevant to business. It includes all the names of nominal accounts and value
of each nominal account. These nominal account either carries a debit balance or credit balance.
In this accounts shows figures of before adjustment which includes adjustment entries and
balances after the adjustment. The aim of maintaining a trial balance is to ensure that all the
entries made into company's general ledger accounts are managed properly (Chow and
Schoenbaum, 2020). It is the sum of calculation or mathematical statement which helps in
ensuring amount of debit and credit in each accounting entry is matched correctly.
Accounts Debit Credit
Bank 3080
Cash 7120
Van 3000
Laptop 1000

Toys limited 2350
Purchase 2450
Purchase return 100
Sales 3900
Rent received 500
Rent paid 1000
Wages 820
drawing 1600
Capital 16200
Repairing
account 80
Fred account 400
Car account 2500
Total 22550 22550
d) Prepare an Income Statement for the period ended 31st October 2020
Particular Amount
Sales 3900
Less : Cost of sales
Opening stock Nil
Purchase 2450
Less: Purchase return 100

Less: Closing stock 250
Gross revenue 1800
Less: Operating expenses
Expenses on repairing 80
Wages 820
Rent paid 1000 1900
Add: Operating income
Rent received 500
Net profit 400
e) Prepare a Statement of Financial Position as at 31st October 2020
Particular Amount Total
Fixed assets
…...Car 2500
…...Van 3000
…...Laptop 1000 6500
Current Assets
…...Cash account 7120
…...Bank account 3080
…...Debtor 400
…...Stock 250
Total assets 17350
Equity and liabilities

…...Equity
…...Capital 16200
…...Less: drawing 1600 14600
…...Retain earnings 400
Current liabilities
…...Toys limited account 2350
Total equities and
liabilities 17350
f) Brief letter to Linda explaining what drawings are concerned with small business and
answering her query for the holiday
Accounting is used for analysing and recording all the business activities which is
required to be classified into various items. This helps in formation of various financial
statements in a company. If Linda withdraws dollar 1600 for travelling expenses it would
directly affect the profitability of the business. If Linda has planned this trip for achieving
official purpose or objective which would not affect the business profitability. This transaction
has been recorded as expenditure in the debit side of journal entry (Franceschi, 2017). In this
case, Linda is the owner of this business which results in deduction of this amount as drawings
from her capital.
PART B
Ratio analysis
Particular Formula Linda
organization
Industry
ratio
Net profit ratio Net profit/ Net sales*100 400/3900*100 10.26% 31
Gross profit
ratio
Gross profit/ Net revenue*
100
1800/3900*100 46.15% 54