Analyzing Business Transactions: Financial Statements and Ratios

This report provides a comprehensive overview of recording business transactions and their impact on financial statements. It begins with an introduction to the double-entry system and the importance of accurate financial records. The report then details the process of recording transactions in journal entries and transferring them to ledger accounts, including examples of bank, cash, and capital accounts. A trial balance is developed to ensure the accuracy of the recorded transactions, followed by the creation of profit and loss statements and balance sheets. The report also includes a brief letter to Linda, addressing accounting principles for small businesses. Furthermore, the report delves into ratio calculations, including net profit, gross profit, current, quick, and accounts receivable and payable ratios, comparing Linda's business performance with industry benchmarks. The conclusion summarizes the key findings, emphasizing the importance of financial reporting and analysis in business decision-making.

Recording Business
Transaction

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
(a) Transactions are recorded in double entry system ................................................................1
b) Ledger accounts......................................................................................................................3
c) Develop a Trial Balance..........................................................................................................6
d) Profit & loss statement............................................................................................................7
e) Balance Sheet..........................................................................................................................8
f) ….Write a brief letter to Linda................................................................................................8
PART B............................................................................................................................................9
….Ratio calculations...................................................................................................................9
…..Linda's competitors ratio.......................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Transactions are first recorded in the accounting books of company then on the ledger
system. It is multi step procedure in which firstly analysis all the transaction that measure in cash
then decided what accounts will be affected. In the second step all the transactions categorised as
per the nature of transaction (Angelis and da Silva, 2019). An accounting system helps a
business to interpret business activities into usable financial records. All the financial
transactions are using to analysis its profitability and determine business activity that helps to
take investment decision. This report based on the different business transactions that recorded
by the organisations in different financial statements like journal entries, Profit & loss statement,
Balance sheet, ledger accounts. In this report cover various financial transactions that are
recorded into Trial balance and financial statements.
PART A
(a) Transactions are recorded in double entry system ..............
A journal entry is a record of business activities that occur in financial period and
measure in money. In this document covers a particular date of transaction, items will be affected
debit and credit, narration of the transaction and a unique reference number. It is known as first
step of accounting cycle. Every financial transaction affect at least two accounts, one is debited
and second is credited (Tong, Tao and Lifset, 2018).
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)
1

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)
2

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
3

(Being drawings made)
b) Ledger accounts.............
Ledger account is a type of financial statement in which maintains data of all the
activities. It is developed under the general ledger with the particular data and amount in
different accounts such as, inventory accounts, sales, purchase, accounts receivables and many
others (Nawawi and Salin, 2018).
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
4

…...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
Repair a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
cash... 80
…...By balance
b/d... 80
Purchase a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To Toys
limited 2450
…...By balance
c/d 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
5

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
6

…...To
Bank 2500
…...By balance
b/d 2500
Wages a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 820
…...By balance
b/d 820
Drawing a/c
Date Particular J.F Amount Date Particular J.F Amount
…...To
Bank 1600
…...By balance
b/d 1600
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
c) Develop a Trial Balance..........
A trial balance is a bookkeeping in which recording all the balances of ledger accounts
that categorized into debit and credit side. An entity prepares trial balance in quarterly, monthly
and yearly basis to present all the balances of different accounts (Stouthuysen, 2020). The main
aim of this work sheet that assure about the journal entries and match the balance of both side.
Accounts Debit Credit
...Bank... 3080
7

...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
22550 22550
8

d) Profit & loss statement
e) Balance Sheet............
Particular Amount Total
Fixed assets
…...Car 2500
…...Van 3000
…...Laptop 1000 6500
Current Assets
…...Cash account 7120
…...Bank account 3080
…...Debtor 400
9

…...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) ….Write a brief letter to Linda..............
Every business adopt accounting principle and concept for manage accounting activities
in proper manner. In the context of small business owner has duty to manage all the accounting
activities in proper way (Heister and Yuthas, 2020). Such as, if Linda withdraw 1600 amount for
the travelling so it will be consider as drawing and has liability to pay back to business. On the
other side Linda travel for business purpose so it will be considered travelling expenses and
present in the Income statement at the debit side.
PART B
….Ratio calculations..............
Particular Formula Linda
organization
Industry
ratio
Net profit ratio Net profit/ Net sales*100 400/3900*100 10.26% 31
10