BA30592E - Recording Business Transactions Assignment Solution, UWL

This assignment solution focuses on recording business transactions for Linda's toy business in Oxford during October 2020. It includes journal entries, ledger accounts, and the preparation of a trial balance, income statement, and financial position statement. The solution also features a letter to Linda regarding drawings and a ratio analysis of the business's performance, comparing it to competitors. The assignment covers various aspects of financial accounting, providing a detailed analysis of the business's financial activities and performance, including net profit ratio, gross profit ratio, current ratio, acid test ratio, and accounts receivable and payable periods.

RECORDING BUSINESS
TRANSACTION

Table of Contents
MAIN BODY...................................................................................................................................3
Part A...............................................................................................................................................3
a) Business transaction in Linda buying and selling toys in Oxford...........................................3
b)Ledger Accounts of Linda business.........................................................................................4
c) Trial balance as on 31st oct 2020............................................................................................7
d)Income statement for year ended 31st Oct 2020......................................................................8
e) Financial Position as on 31st Oct 2020...................................................................................8
f)Letter to Linda regarding drawings..........................................................................................8
Part B...............................................................................................................................................9
1. Ratio's for Linda's Business....................................................................................................9
2. Analysis of Lind's business performance as compared to competitors.................................10
REFERENCES..............................................................................................................................12

MAIN BODY
Part A
a) Business transaction in Linda buying and selling toys in Oxford
Date Particulars L.F Debit Credit
01/10/20 Bank A/C 8000
Cash A/C 5200
Van A/C 3000
To Capital A/C 16200
(Being Capital introduced)
02/10/20 Laptop A/C 1000
To Bank A/C 1000
(Being Laptop bought )
04/10/20 Purchase A/C 2450
To Toy Ltd. A/C 2450
(Being toys are purchased on credit)
05/10/20 Bank A/C 1500
To sales A/C 1500
(being goods sold)
12/10/20 Repairs A/C 80
To Cash A/C 80
(Being laptop is repaired )
18/10/20 Toys Ltd. A/C 100
To purchase A/C 100
(Being goods returned to toys ltd)

21/10/20 Bank A/C 500
To Rent A/C 500
(Being rent received)
23/10/20 Cash A/C 1500
Fred A/C 400
To sales A/C 1900
(Being Goods sold on cash and cred
it partly )
23/10/20 Cash A/C 500
To sales A/C 500
(Being goods sold to David)
24/10/20 Second hand car A/C 2500
To Bank A/C 2500
(Being car purchased by issuing
cheque)
26/10/20 wages A/C 820
To Bank A/C 820
(Being wages paid to part time
workers )
30/10/20 Rent A/C 1000
To Bank A/C 1000
(Being rent paid)
31/10/20 Drawings A/C 1600
To Bank A/C 1600

(being business funds used by owner
for paying expenses of holiday)
Total 30150 30150
b)Ledger Accounts of Linda business
Dr. Capital Account Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To balance C/d 16200 01/10/20 By Bank A/C 8000
01/10/20 By Cash A/C 5200
01/10/20 By Van A/C 3000
16200 16200
Dr. Laptop A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
02/10/20 To Bank A/C 1000 31/10/20 To balance C/d 1000
1000 1000
Dr. Bank A/C Cr.
Date Particulars J.F Amount Date Particulars J.F 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 Second hand
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
31/10/20 by balance C/d 3080
10000 10000
Dr. Cash A/C Cr.
Date Particulars J.F Amount Date Particulars J.F 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 31/10/20 by balance C/d 7020
23/10/20 To sales A/C 500
7200 7200
Dr. Van A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
01/10/20 To Capital A/C 3000 31/10/20 by balance C/d 3000
3000 3000
Dr. Purchase A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
04/10/20 To Toy Ltd. A/C 2450 31/10/20 by balance C/d 2450
2450 2450
Dr. Drawings A/C Cr.
Date
Particular
s J.F Amount Date
Particular
s J.F Amount

31/10/20
To balance
C/d 100 18/10/20
Toy Ltd.
A/C 100
100 100
Dr. Toy Ltd. A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
18/10/20 To Cash A/C 100 04/10/20 Purchase A/C 2450
31/10/20 To balance C/d 2350
2450 2450
Dr. Sales A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To balance C/d 3900 05/10/20 By Bank A/C 1500
23/10/20 By Cash A/C 1500
23/10/20 By Fred A/C 400
23/10/20 By Cash A/C 500
3900 3900
Dr. Repairs A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
12/10/20 To Cash A/C 80 31/10/20 by balance C/d 80
80 80
Dr. Rent A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount

30/10/20 To Bank A/C 1000 21/10/20 By Bank A/C 500
31/10/20 by balance C/d 500
1000 1000
Dr. Fred A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
23/10/20 To sales A/C 400 31/10/20 by balance C/d 400
400 400
Dr. Second hand car A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
24/10/20 To Bank A/C 2500 31/10/20 by balance C/d 2500
2500 2500
Dr. Wage A/c Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
26/10/20 To Bank A/C 820 31/10/20 by balance C/d 820
820 820
Dr. Drawings A/C Cr.
Date Particulars J.F Amount Date Particulars J.F Amount
31/10/20 To Bank A/C 1600 31/10/20 By balance C/d 1600

1600 1600
c) Trial balance as on 31st oct 2020
Particulars Debit Credit
Capital 16200
laptop 1000
bank 3080
Cash 7120
van 3000
purchase 2450
Toys Ltd account 2350
sales 3900
Repairs 80
rent 500
Fred Account 400
Second hand car account 2500
wage 820
drawings 1600
Purchase return 100
Total 22550 22550
d)Income statement for year ended 31st Oct 2020
Income statement
Particulars Amount Amount
sales 3900
Opening stock 0
Purchase 2450
Purchase return 100
Closing stock 250 2100

Gross Profit 1800
Repairs 80
rent 500
wage 820 1400
Net Profit 400
e) Financial Position as on 31st Oct 2020
Liabilities Amount Assets Amount
Capital 16200 laptop 1000
(Drawings) -1600 bank 3080
Net Profit 400 Cash 7120
van 3000
creditor 2350 Fred Account 400
Second hand car account 2500
Closing Account 250
17350 17350
f)Letter to Linda regarding drawings
To Linda,
Drawings are those expenses that owner does from business fund. It reduces fund of
business as it is used by proprietors for their personal agendas. Linda has a small business with
low amount of capital (Easton and et.al., 2018). Linda withdrew some amount of money for
personal tour expenses. Such expenses not only make business weaker but also it makes
unstable. She was asking the business to convert it into business expenses, which is completely
unethical. These transactions reduce working capital of company that forces business to brought

money from external resources. These external resources charge interest from firm for using
these resources for the motive of earning profit.
It is expected from the owner of business to pay its drawings on time with interest.
Proprietor (Craja, Kim and Lessmann, 2020). It is ethical principle of accounting to maintain fair
transaction. To fulfil this principle paying drawings to organization becomes necessary for owner
of firm. It expected from you to pay this obligation for safeguard of business.
Part B
1. Ratio's for Linda's Business
Net profit ratio
Particulars Formula Ratio
Net Profit 400
sales 3900
Net profit Ratio Net Profit /sales *100 10.25
Gross profit ratio
Particulars Formula Ratio
gross Profit 1800
sales 3900
Gross profit margin Gross Profit /sales *100 46.15
Current Ratio
Particulars Formula Ratio
Current asset 10850
current liability 2350
Current ratio Current asset /current liability 4.6
Acid Test Ratio
Particulars Formula Ratio

Quick asset 10600
current liability 2350
Acid Test ratio Quick asset /current liability 4.5
Account Receivable collection period
Particulars Formula Ratio
Account receivable 400
net credit sales 400
Account receivable collection period Account receivable /COGS*365 365
Account payable payment period
Particulars Formula Ratio
Account payable 2450
COGS 2100
Account payable payment period Account payable /COGS*365 425.83
2. Analysis of Lind's business performance as compared to competitors
Net profit ratio of Linda's company for the year 2020 is 10.25%. An ideal net profit ratio
of any company should be between 10-20%. So from theoretical perspective ratio of Linda's
business is good. From competitors point of view net profit ratio of Linda's firm is too less as
ratio of competitors is 31% (Robinson, 2020) . so difference between company and others firm
ratio is approx 21% which is indicating low profitability of organisation in industry.
An ideal gross profit Ratio any industry is 15-20%. while ratio of mentioned company is
46.75% which is outstanding when it is compared to ideal ratio. Ratio of competitors is 54% . in
industry Linda is too back in case of earning gross profit. Ratio of profit is 10% approximately
less when it is compared to its industry's participant. This shows that company should take
important actions to improve its profitability to maintain interest of stakeholders.
Current ratio of company is 4.6 times. while a perfect ratio is 1.2-2 , which means that
company have assets two times more than its liabilities. In case of Linda's firm, assets are four
times better than its liabilities that increases investors interest to invest their fund. So that it can
easily pay-off its current obligations (Bergner and et.al., 2020). Current ratio of competitors is