Recording Transactions and Analyzing Financial Statements

This report provides a detailed analysis of business transactions, including double-entry recording in T-accounts, balancing accounts, and extracting a trial balance. It prepares an income statement and a statement of financial position for October 2021. The report also includes a letter explaining dr...Read More

Recording Business
transaction

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
a) Write double entry record the transactions in T-accounts.......................................................1
b) Balance the accounts and bring down an opening balance.....................................................2
c) Extract a Trial balance as at 31st October 2021......................................................................5
d) Prepare an Income Statement for the period ended 31st October 2021..................................6
e) Prepare a Statement of Financial Position as at 31st October 2021........................................7
f) Write a brief letter to Anne explaining what drawings are concerning small business and
answering her query concerning her holiday...............................................................................8
PART B...........................................................................................................................................8
a) According to the information available in Income and Financial position statements in Part
A, calculate the following ratios for Anne’s business for October 2021.....................................8
b) Assuming Anne’s competitor’s ratio averages are as stated above for month October of
years 2019, 2020 and 2021: Analyse her performance with reference to the ratios of October
2021 calculated in comparison to those of her competitor. Also, briefly explain the impact of
Covid -19 outbreak on the average ratios..................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
A commercial operations is an organisation's fiscal status that reflects the firm‘s
sustainability (Carlson and Koch, 2018). It also creates accounting data in concerning the
financial reporting. There is also a look at the firm's evaluation depending on the evidence
collected for it.
PART A
a) Write double entry record the transactions in T-accounts
JOURNAL ENTRIES
Date Particulars Debit Credit
01/10/21 Bank
Cash
Flat
Car
Capital
10000
4800
45000
12000
71800
02/10/21 Purchases
Home Ltd
5400
5400
04/10/21 Computer
Printer
Bank
800
200
1000
05/10/21 Bank
Sales
2800
2800
12/10/21 Repair Expense
Cash
110
110
18/10/21 Home Ltd.
Purchases
250
250
21/10/21 Bank
Rent Income
800
800

23/10/21 Rayan
Cash
Sales
300
1800
2100
23/10/21 Cash
Sales
700 700
24/10/21 Laptop
Bank
1700
1700
26/10/21 Wages
Bank
820
820
30/10/21 Rent Expenses
Bank
850
850
31/10/21 Drawings
Bank
1200
1200
31/10/21 Cash
Rayan
150
150
b) Balance the accounts and bring down an opening balance
Bank
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 10000 04/10/21 Computer 800
21/10/21 Rent 800 04/10/21 Printer 200
05/10/21 Sales 2800 24/10/21 Laptop 1700
26/10/21 Wages 820
30/10/21 Rent 850
31/10/21 Drawings 1200
31/10/21 Balance c/d 8030
13600 13600
Cash

Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 4800 12/10/21 Repair 110
23/10/21 Sales 1800
23/10/21 Sales 700
31/10/21 Rayan 150 31/10/21 Balance c/d 7340
7450 7450
Flat
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 45000 31/10/21 Balance c/d 45000
45000 45000
Car
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Capital 12000 31/10/21 Balance c/d 12000
12000 12000
Capital
Date Particulars Ref Amount Date Particulars Ref Amount
01/10/21 Bank 10000
01/10/21 Cash 4800
01/10/21 Flat 45000
31/10/21 Balance c/d 71800 01/10/21 Car 12000
71800 71800
Purchases
Date Particulars Ref Amount Date Particulars Ref Amount
18/10/21 Home Ltd 5400 02/10/21 Home Ltd 250
31/10/21 Balance c/d 5150

5400 5400
Home Ltd
Date Particulars Ref Amount Date Particulars Ref Amount
02/10/21 Purchases 250 18/10/21 Purchases 5400
31/10/21 Balance c/d 5150
5400 5400
Computer
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 800 31/10/21 Balance c/d 800
800 800
Printer
Date Particulars Ref Amount Date Particulars Ref Amount
04/10/21 Bank 200 31/10/21 Balance c/d 200
200 200
Repair Expenses
Date Particulars Ref Amount Date Particulars Ref Amount
12/10/21 Cash 110 31/10/21 Balance c/d 110
110 110
Rent
Date Particulars Ref Amount Date Particulars Ref Amount
21/10/21 Bank 850 30/10/21 Bank 800
31/10/21 Balance c/d 50
850 850
Rayan
Date Particulars Ref Amount Date Particulars Ref Amount

23/10/21 Sales 300 31/10/21 Cash 150
31/10/21 Balance c/d 150
300 300
Sales
Date Particulars Ref Amount Date Particulars Ref Amount
05/10/21 Bank 2800
23/10/21 Rayan 300
31/10/21 Balacne C/d 5600 23/10/21 Cash 1800
23/10/21 Cash 700
5600 5600
Laptop
Date Particulars Ref Amount Date Particulars Ref Amount
24/10/21 Bank 1700 31/10/21 Balance c/d 1700
1700 1700
Wages
Date Particulars Ref Amount Date Particulars Ref Amount
26/10/21 Bank 820 31/10/21 Balance c/d 820
820 820
Drawings
Date Particulars Ref Amount Date Particulars Ref Amount
31/10/21 Bank 1200 31/10/21 Balance c/d 1200
1200 1200
c) Extract a Trial balance as at 31st October 2021
Particulars Debit Credit
Bank 8030

Cash 7340
Flat 45000
Car 12000
Capital 71800
Purchases 5150
Home Ltd 5150
Computer 800
Printer 200
Repair Expenses 110
Rent 50
Rayan 150
Laptop 1700
Wages 820
Drawings 1200
Sales 5600
TOTALS 82550 82550
d) Prepare an Income Statement for the period ended 31st October 2021
INCOME STATEMENT
Particulars Amount (£) Amount (£)
Net Sales 5600
Less: Cost of Goods Sold 4830
Purchases 5150
Add: Closing Stock 320
Gross Profit 770

Less: Operating Expenses 980
Repair Expenses 110
Rent 50
Wages 820
Net Loss -210
e) Prepare a Statement of Financial Position as at 31st October 2021
BALANCE SHEET
Particulars Amount (£ )
ASSETS
Current Assets
Stock 320
Bank 8030
Cash 7340
Debtor (Rayan) 150
Total Current Assets 15840
Fixed Assets
Flat 45000
Car 12000
Computer 800
Printer 200
Laptop 1700
Total Fixed Assets 59700
Total ASSETS 75540

EQUITY AND LIABILITIES
Liabilities
Current Liabilities
Creditors (Home Ltd.) 5150
Total Current Liabilities 5150
Equity
Capital 71800
Less: Drawings 1200
Net Loss -210
Total Equity 70390
Total Liabilities 75540
f) Write a brief letter to Anne explaining what drawings are concerning small business and
answering her query concerning her holiday
Linda should be informed that $1200 was moved from company funds to make a reservation
and flights for her trip in Edinburgh (Holden, 2016). This should have been considered
withdrawals since a part of the financial institution was used to support Anne York's trip, and
therefore it should have been considered the sum removed from the company for individual
matters. As previously said and as could be observed in the basics, the company and the
company operator are two independent entities, and so the cost of the manager's holiday expense
report cannot be passed to the company and must be borne by the proprietor in the ordinary
conduct of company activities (Mullins, 2017).
PART B
a) According to the information available in Income and Financial position statements in Part A,
calculate the following ratios for Anne’s business for October 2021
Particulars Amount
Acid Test ratio

Current Assets 15480
Stock 320
Current Liabilities 5150
Acid Test ratio = (Current Assets – Stock) / Current Liabilities (15480 – 320) / 5150 = 2.94
Particulars Amount
Accounts Receivable Collection Period
Average Debtors 150
Net Sales 5600
Accounts Receivable Collection Period = (Average Debtors / Net Sales)
* 365
= (150 / 5600) *365 = 9.78
Days
Particulars Amount
Accounts Payable Payment Period
Average Creditors 5150
Net Purchases 5150
Accounts Payable Payment Period = (Average Creditors / Net
Purchases) * 365
= (5150 / 5150) * 365 = 365
Days
Particulars Amount
Net Profit Margin
Net profit -210
Net Sales 5600
Net Profit Margin = (Net profit / Net Sales) * 100
=(-210 / 5600) * 100 = -
3.75%
Particulars Amount
Gross Profit Margin
Gross Profit 770
Net Sales 5600
Gross Profit Margin = (Gross Profit / Net Sales) * 100
=(770 / 5600) * 100 =
13.75%
Particulars Amount
Current Ratio
Current Assets 15480
Current Liabilities 5150
Current Ratio = Current Assets / Current Liabilities =15480 / 5150 = 3.01

b) Assuming Anne’s competitor’s ratio averages are as stated above for month October of years
2019, 2020 and 2021: Analyse her performance with reference to the ratios of October
2021 calculated in comparison to those of her competitor. Also, briefly
explain the impact of Covid -19 outbreak on the average ratios
It's plausible to believe Anne's company isn't performing well sufficient in comparison to its
competitors. As per Anne's calculations, the company is losing money, as expected. It must
reduce its operational expenses (Siedel, 2016). Because contrasted to the competition, their
operating earnings are substantially higher than Anne's. Anne's company's total revenue
percentage is likewise lower than its rivals' nationwide standard.
CONCLUSION
Given the result of the research, it is clear that regular monitoring of all corporate processes
in finance documents is critical. They are being utilized to keep track of all monetary
transactions that occur within the firm.

REFERENCES
Books and journals
Carlson, E. and Koch, J., 2018. Building a Successful Social Venture: A Guide for Social
Entrepreneurs. Berrett-Koehler Publishers.
Holden, N., 2016. Economic exchange and business language in the ancient world: An
exploratory review. In The Palgrave Handbook of Economics and Language (pp. 290-
311). Palgrave Macmillan, London.
Mullins, J., 2017. The new business road test: what entrepreneurs and investors should do before
launching a lean start-up. Pearson UK.
Siedel, G. J., 2016. The three pillar model for business decisions: strategy, law and ethics. Van
Rye Publishing, LLC.