Recording Business Transactions: Analysis, Journal, and Statements

This assignment solution provides a comprehensive overview of recording business transactions, including the preparation of journal entries, ledger accounts, and financial statements such as the trial balance and income statement. The solution analyzes decision-makers within a company and their use of accounting information, focusing on a large company listed on the stock exchange. It also discusses the advantages and disadvantages of accounting practices and explores the impact of the COVID-19 pandemic on a business's profitability. The document includes examples of journal entries, ledger accounts, trial balances, and income statements, providing a practical guide to the concepts covered. The solution demonstrates how accounting information is used for strategic decision-making and financial reporting.

Recording Business
Transactions
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Table of Contents
Introduction......................................................................................................................................3
Assessment 1....................................................................................................................................3
Part 1.......................................................................................................................................3
Part 2.......................................................................................................................................5
Part 3.......................................................................................................................................6
Part 4.......................................................................................................................................8
Conclusion.......................................................................................................................................9
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Introduction
Accounting is primarily concerned with recording and summarising events that are of the
financial nature in the books of accounts. These financial data are then interpreted to prepare
various financial statements and reports which is then further used by management and investors
to make informed decision. This assessment is aimed at demonstrating recording of business
transactions in books of accounts like journal and ledger to prepare trial balance and income
statement. Further, decision-makers in Google LLC are identified and their usage of accounting
information is discussed. Advantages and disadvantages encountered by accountants while
recording accounting information and the impact of Covid-19 on the profitability of the business
are also discussed in the assessment.
Assessment 1
Part 1
A. Decision-makers in Vodafone and the need of accounting information
Strategic decision-making of the company stems from its organisational structure and
inspires its organisational culture as well. Google follows a cross-functional organisational
structure which is a combination of matrix and flat structure. Decision-making is necessary at all
levels of management in a company but the strategic decision-making is made by top level
management of the company. Senior management needs to encompass both financial as well as
non-financial information while making a holistic decision. Google has a defined value structure
which guides all the decisions taken in the company. Senior management devises strategies
which are passed in the form of guidelines to middle level managers who are made further
responsible to pass on instructions to the teams working beneath them.
All the decisions that are taken by the board of directors of the company are either based
on the information analysed out of financial statements or influenced from it. Financial
statements i.e. income statement, statement of financial position and cash flow statement reflect
financial position and performance of the company. These are prepared by the accounts
department of the company as per the International Financial Reporting Standards (IFRS) and
used by finance managers to interpret so that they can further assist board of directors in making
effective decisions related to planning, operating and controlling. These accounts are used to
prepare budgets and forecasts i.e. historical information of the business is adjusted according to
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the present situations to determine the course of future activities of the business. Other than
vertical analysis of business data, management also uses these accounts to compare their
performance with other competing companies in the industry. Since, accounts are prepared on
the basis of IFRS, standard data is obtained which is comparable with other companies' data
which is prepared applying IFRS standards. Management also uses accounting information to
assess the feasibility and viability of the business opportunities that comes its way. These
analysis are not only used by management but by investors also to make informed decisions
about their investments.
B Advantages and disadvantages of accounting
Accounting includes recording, classifying, summarising, analysing and interpreting
transactions of the business which are of financial nature. These are to be recorded in the books
of accounts to be further interpreted into financial statements to be used for further decision-
making. Advantages and disadvantages of accounting for accountants are below mentioned:
Advantages:
 Evidence in legal matters – Accountants have to prepare books of accounts of a company
in accordance with the Generally Accepted Accounting Principles (GAAP). These are
then to be further audited by independent auditor. These accounts are used by company to
determine its tax liabilities as they are accepted as legally accepted by tax authorities.
These accounts can also be presented as legal evidence in courts to represent stand of the
company.
 Decision-making – Accountants record all the transactions of the business in the books of
accounts and then prepare financial statements out of them. These statements are then
taken by senior management of the company to make informed decisions. Accountant
assist management in taking those decisions by further analysing those statements and
reports and prepare budgets, cash flow forecasts, trends, ratio, etc. Accountants also
convert non-financial data related to the business into quantifiable terms so that they can
be used by management to decide and devise further strategies.
Disadvantages:
 Only financial information is recorded – Accountants are entrusted to assist management
in decision-making but only financial aspects of the business transactions are recorded
ignoring non-financial information which lays significant impact on the business of the
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company such key performance indicators, market and political situations, etc. This then
led to decision-making on the basis of incomplete decisions. Further, entries are recorded
on the historical cost basis and they are not updated according to the present market
value which also leads to decision-making on the incorrect basis.
 Personal bias – Accounts are to be prepared according to GAAP but still interpretation of
the transaction to be recorded in the books of accounts is dependent on the accountant
which creates room for the possibility of biased interpretation. Incorrect interpretation on
the part of accountant can distort information which will lead to incorrect financial
statements. Also, this gives rise to chances of financial frauds and manipulations which is
capable of bringing both financial as well as reputation harm to the company.
Part 2
Recording in books of primary recording – Journal
Journal of David Wise
(for the month of February 2020)
Date Particulars Debit (in £) Credit (in £)
01st Feb 20 Asma_ Limited_ A/c .Dr.
To Office_ fixtures_ A/c
(Unsuitable office fixtures returned)
350
350
4th Feb 20 Bad_ debt_ A/c .Dr.
To S_ Keyes_ A/c
(Debtor written off as bad debt)
85
85
9th Feb 20 Machinery_ A/c
To Bank_ A/c
To TS_ Co._ A/c
(Machinery purchased on part credit)
2300
200
2100
13th Feb 20 Bank_ A/c .Dr.
Bad_ debt_ A/c .Dr.
To S_ Hill_ A/c
(part payment received from debtor as final
220
50
270
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settlement)
20th Feb 20 Drawings_ A/c .Dr.
To Purchases_ A/c
(Goods withdrawn for personal use)
180
180
26th Feb 20 Drawings_A/c Dr.
To Insurance_A/c
(Personal insurance wrongly debited to
business now corrected)
85
85
28th Feb 20 TS_ Co_ A/c .Dr.
To Bank_ A/c
(Part payment made for machinery to
vendor)
1050
1050
Part 3
A. Transaction recording in ledger Accounts of Pearce & Sons
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B. Trial Balance as at 28th Feb 2020
Trial Balance of Pearce & Sons
(as at 28th Feb 2020)
Particulars Debit ( in £) Credit ( in £)
Capital... Account... 47300
Bank... Account... 12230
Cash... Account.. 1080
Van.. Account.... 35000
Quick.. Office Ltd... Account.... 1100
Office.. Fixture.. Account..... 2590
Loan.. Account... 2500
Total... 50900 50900
Part 4
A. Income Statement for Airman Co. for the year ending 30th September 2020
Profit & Loss Account...
(for the year ending 30th September 2020)
Particulars Amt (£) Particulars Amt (£)
Opening..Stock.. 36000 Sales..... 80000
Purchases... 150000 Less: Returns..Inwards.... -2000 78000
Less: Returns..Outwards.. -600 149400 Closing..Stock... 120000
Carriage..Inwards... 720
Gross..Profit..c/f.. 11880
..Total.. 198000 ...Total.. 198000
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Carriage..Outwards.. 400 Gross..Profit..c/d... 11880
Motor..Expenses.. 1200
Rent.. 5000
Telephone..Charges.. 620
Wages..and..Salaries.. 32000
Insurance.... 830
Office..Expenses... 600
Sundry..Expenses... 300
Net..Loss... -29070
..Total.. 11880 ..Total.. 11880
B. Impact of Covid-19 on profitability of the business
In the given scenario, it has been presented that mentioned company has been operating
since long and been stably declaring profit from last 10 years. But, as calculated above, in the
current financial year, company has registered loss and this loss can be attributed to the
instability in the market conditions in which it operates. Market conditions of the economy in
which business operates plays a crucial role in profitability of the business. Stability in the
market conditions are subjected to influences from factors such as political environment, social
environment, legal environment, etc. In the year 2020, dominant force influencing probability of
the basis can be deemed to be disruptions caused by Covid-19 pandemic and consequent lock-
down.
Situations presented by pandemic have not been observed before and so are the
consequent disruptions which makes comparing current financial year's performance with last
years not appropriate. To safeguard lives, lock-down was imposed which resulted in
obstructions in production, logistics, supply chain, etc. This increased costs while reducing sales
at the same time. Fixed charges were being paid like earlier and in the wake of increased cost,
managing cash flow was getting difficult. However, it is very difficult to determine the exact
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force and impact that pandemic brought upon the profitability of the business. Moreover, from
the information provided, it can be seen that company maintains October to September as
financial year. Pandemic disrupted businesses from later part of March when lock-down was
imposed throughout country. This means that impact of Covid-19 on the probability of the
business was largely restricted to last two quarters of the current financial year and it is safe to
assume that loss made due to pandemic restrictions surpassed profit earned during the year.
Conclusion
Above assessment includes demonstration of recording business transactions in books of
accounts such as journal and ledger. Also, preparation of trial balance and income statement has
also been elucidated above. Further in the above assessment, it can be understood that strategic
decision-making in a company is a function of its senior management and they use financial
statements for making informed decisions.
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