Financial Accounting: Recording Business Transactions Assessment A2

This assignment, "Recording Business Transaction Assessment A2," focuses on the core principles of financial accounting. It begins with a detailed set of journal entries, meticulously recording various business transactions. Following this, the assignment presents individual ledger accounts and culminates in the preparation of a trial balance, income statement, and balance sheet, providing a comprehensive overview of the company's financial performance and position. The assessment also includes a brief letter analyzing the impact of drawings on the company's liquidity. Furthermore, the assignment delves into ratio calculations, including net profit margin, gross profit margin, current ratio, acid-test ratio, and accounts receivable/payable collection periods, offering insights into the company's financial health and performance compared to industry benchmarks. The analysis highlights areas for improvement, particularly in profitability and expense management, offering strategic recommendations for enhanced financial performance.

RECORDING BUSINESS
TRANSACTION
ASSESSMENT A2

Table of Contents
INTRODUCTION...........................................................................................................................3
Part A...............................................................................................................................................3
Journal Entry ...............................................................................................................................3
Balance account ..........................................................................................................................4
Trial Balance ...............................................................................................................................8
Income statement for the year ending 31st October 2020...........................................................8
Balance Sheet as at 31st October 2020........................................................................................9
Brief letter ...................................................................................................................................9
Part B.............................................................................................................................................11
Ratio calculation .......................................................................................................................11
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Recording the business transactions is denoted as maintaining the books of accounts of
company that can reflect about the financial position of the organisation. This report will address
different aspects related to recording the business activities of the organisation. Henceforth,
report will emphasis over projecting the transaction of company based on the double entry book
keeping system maintained by the organisation. Individual ledger account will also project in the
report that can demonstrate precisely the actions taken by entity under te double entry book
keeping system. Trail balance will also reflect in the project. Further the income statement will
project in the project to denote about the profitability situation of the organisation. Letter will
also be summarises to identify the drawing treatment effectiveness of the organisation.
Furthermore, this study will talk about different ratios. Calculation will be shown for different
ratios. Performance of the company will be analysed withy the support of different ratios
calculated in the project.
Part A
Journal Entry
Date Particular Debit Credit
1 October,
2020
Bank a/c
Cash a/c
Van a/c
To Capital a/c
8000
5200
3000
16200
02/10/20 Laptop a/c
To Bank
1000
1000
04/10/20 Purchase a/c
To Toys Ltd.
2450
2450
05/10/20 Bank a/c
To sales
1500
1500
12/10/20 Repairing a/c 80

To cash 80
18/10/20 Toys Ltd. a/c
To Purchase return
100
100
21/10/20 Bank a/c
To rent
500
500
23/10/20 Cash a/c
Fred a/c
To sales
1500
400
1900
23/10/20 Cash a/c
To sales
500
500
24/10/20 Car a/c
To Bank
2500
2500
26/10/20 Wages a/c
To Bank
820
820
30/10/20 Rent /ac
To Bank
1000
1000
31/10/20 Drawing a/c
To Bank
1600
1600
Balance account
Capital Account
Date Particulars Amount Date Particulars Amount
01/10/20 By bank A/c 8000
By Cask A/c 5200
By Van A/c 3000
31/10/20 To Drawings
A/c
1600
To Balance 14600

C/f
01/11/20 By Balance
B/d
14600
Bank Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 8000 02/10/20 By Laptop A/c 1000
05/10/20 To Sales A/c 1500 24/10/20 By car A/c 2500
21/10/20 To Rent A/c 500 26/10/20 By wages A/c 820
30/10/20 By Rent A/c 1000
31/10/20 By Drawings
A/c
1600
By Balance
C/f
3080
01/11/20 To Balance
b/d
3080
Van Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 3000 31/10/20 By Balance
C/f
3000
01/11/20 To Balance
B/d
3000
Laptop Account
Date Particulars Amount Date Particulars Amount
02/10/20 To Bank A/c 1000 31/10/20 By Balance c/f 1000

01/11/20 To Balance
B/d
1000
Cash Account
Date Particulars Amount Date Particulars Amount
01/10/20 To Capital A/c 5200 12/10/20 By Repairs
A/c
80
23/10/20 To Sales A/c 1500
To Sales A/c 500 31/10/20 By Balance
C/f
7120
01/11/20 To Balance
B/d
7120
Toys Ltd. Account
Date Particulars Amount Date Particulars Amount
18/10/20 To Purchase A/c 100 04/10/20 By Purchase A/c 2450
31/10/20 To Balance c/f 2350
01/11/20 By Balance b/d 2350
Purchase Account
Date Particulars Amount Date Particulars Amount
04/10/20 To Toys Ltd. 2450 18/10/20 By Toys Ltd. 100
31/10/20 By Trading &
P/L A/c
2350
Sales Account

Date Particulars Amount Date Particulars Amount
05/10/20 By bank a/c 1500
23/10/20 By Cash A/c 1500
By Fred a/c 400
By Bank A/c 500
31/10/20 To Trading &
P/L A/c
3900
Repairs Account
Date Particulars Amount Date Particulars Amount
12/10/20 To Cash A/c 80 31/10/20 By P/L A/c 80
Fred Account
Date Particulars Amount Date Particulars Amount
23/10/20 To Sales a/c 400
31/10/20 By balance C/f 400
01/11/20 To Balance
b/d
400
Rent Account
Date Particulars Amount Date Particulars Amount
21/10/20 By Bank a/c 500
31/10/20 To P/L A/c 500
Car Account
Date Particulars Amount Date Particulars Amount
24/10/20 To bank a/c 2500 31/10/20 By balance c/f 2500

01/11/20 To balance b/d 2500
Wages Account
Date Particulars Amount Date Particulars Amount
26/10/20 To bank a/c 820 31/10/20 By Trading &
P/L a/c
820
Drawings account
Date Particulars Amount Date Particulars Amount
31/10/20 To bank a/c 1600 31/10/20 By Capital a/c 1600
Trial Balance
Trial balance as at 31 October 2020
Particulars Debit Amount Credit Amount
Capital 14600
Cash 7120
Bank 3080
Purchases 2350
Laptop 1000
Van 3000
Creditor 2350
Sales 3900
Repairs 80
Debtor 400
Rent 500

Car 2500
Wages 820
Rent 1000
Total 21350 21350
Income statement for the year ending 31st October 2020
Particulars Amount
Sales 3900
Less:
COGS
Purchases
Wages
Closing Stock
2920
2350
820
(250) (5840)
Gross margin 980
Add: Rent received
Less:
Rent 1000
Repairs 80
500
(1080) (580)
Net Profit 400
Balance Sheet as at 31st October 2020
Particulars Amount
Assets
Current Assets
Bank 3080
Cash 7120

Debtors 400
Closing Stock 250
Fixed Assets
Van 3000
Laptop 1000
Second-hand car 2500
Total 17350
Capital & Liability
Capital 14600
Add: Net profit 400
15000
Current Liability
Creditors 2350
Total 17350
Brief letter
To
The Board of Director,
Linda Company,
From
Financial experts
Sub: Analysis financial position.
Respected Sir/ Madam
The analysis of the financial position of the business entity there are certain conclusions
has been designed. Company's owners drawn the total amount of 1600. This is a huge number
especially in case of small business houses. Drawing is about the situation when the owner of
the business bring out resources from the business venture. The impact of the drawing directly
over the liquidity situation of the organisation (Mengis, Nicolini and Gorli, 2018). Financial
resources are limited in number especially for the small and medium scale business houses. As

the small companies already contain limitation in the financial resources that further drive the
organisation to suffer from its liquidity. Apart from the natural limitation of the overall financial
resources if the management bring out resources in form of drawing this let the organisation
further suffer from the liquidity situation.
The proper strategy bin case of business operations must be that where the company
introduce more resources in the regular business functions. Management should adopt the
strategy where it tend to introduce more number of financial resources in the overall business
activity. The current situation of the company is when it could somehow due to certain situation
bring out the financial resources that could create a certain level of shortage in the bank balance
of company. At any point of time of the businesses follow drawing practice it damage the
overall capabilities and financial stability of such organisations. IN case of small business
houses usually the management are the owners of the company who have invested its capital to
start the business activity (Lemieux, 2017). The board of director in case of small companies
already take salary against the services they deliver to the business houses. Either they charge
some amount of salary or the profit share in against to deliver their services to the business
house. IT is precisely recommended than only if teh owners strictly required the financial
resources, and they are finding themselves unable to meet such need from any other source like
bank, financial institution and any other source they must not approach the bank account to the
company they are involved in as a manager. As the drawing from the business directly demolish
the overall financial capability of the business organisation this is strictly denoted for the
management to billow capital from the organisation.
Whenever the owner seek for any source of finance they must approach the external
sources of finance or the personal resources rather then debiting the bank account of business
organisation. IF they aim to have tge massive success for the business organisation they are
associated with they must focus over improving and enhancing the overall capability and
potential of the business organisation (Limo, 2017). Owner can use other sources like bank
finance, investors and private finances to meet all their funding requirements. Further the
business houses should utilise the personal bank account rather than go towards approaching the
bank account of company as a drawing source to mitigate the financial need they carry.
Company is currently facing the query where it is looking to approach customers and
companies in the South Ealing region. It can approach to other business entity like John

Sanders, St James and such entities. This is also essential for the organisation to approach new
sources that can potentially support the overall growth and development of the business entity.
IN case to achieve the growth and development in business it is essential that the organisation
constantly form strategic alliances with the stakeholders, investors and also it must overlook the
market where it can entertain business houses (Chen and et.al., 2018). Company can further
approach to small business houses associated with the toy industry to expand the reach of its
overall business outcomes. It can further use the holiday packages where it can give extra
discounts to the customers for attracting the new customers over a holiday period. People all
across the globe look for discounts that can suit based on the buying power of such customers.
This will improve the interest of potential customers in the product portfolio of the company.
All the above suggestions has been given based on the knowledge and experience.
Company has the option to also follow other suitable approaches if they find it more fruitful as
per the need and requirement of the business.
Thank You.
Part B
Ratio calculation
Net profit margin
= Net profit / sales * 100
= 400 / 3900 * 100
= 10.26%
Gross Profit Margin
= Gross Profit / Sales * 100
= 980 / 3900 * 100
= 25.12%
Current Ratio
= Current Asset / Current Liability
= 10850 / 2350