Recording Business Transactions Portfolio - Financial Accounting

This project is a finance portfolio that meticulously documents the process of recording business transactions, starting with journal entries and progressing through ledger postings, trial balance preparation, and the creation of income statements and balance sheets. The portfolio includes a detailed double-entry bookkeeping example, followed by balancing accounts and extracting a trial balance. It then moves on to preparing an income statement and a statement of financial position. Further, the project provides a brief explanation of drawings in the context of a small business. Part B of the project focuses on calculating key financial ratios, such as gross profit ratio, net profit ratio, current ratio, and quick ratio. The portfolio concludes with an analysis of the company's performance based on these ratios, comparing them to industry benchmarks and competitors. This project serves as a comprehensive guide to financial accounting principles.

RECORDING BUSINESS
TRANSACTION-
PORTFOLIO (2)

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Double entry................................................................................................................................3
Balancing the account.................................................................................................................4
Extracting trial balance...............................................................................................................8
Preparing income statement........................................................................................................8
Preparing statement of financial position....................................................................................9
Brief letter explaining what drawing are concerning small business..........................................9
PART B............................................................................................................................................9
Calculating ratios........................................................................................................................9
Analysis of performance of company with reference to ratios.................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Recording the business transaction is the most important thing for the company as this
assist the company in recording all the transaction. Thus, this provides a clear view that what all
the transaction have been recorded within the business. The present report outlines the whole
process starting with journal then posting in ledger and the making trial balance and the income
statement and balance sheet. In the end he ratios will be calculated and the discussion relating to
financial position will be made.
PART A
Double entry
Date Particular Debit Credit
Oct 1 Bank a/c
Cash a/c
Van a/c
To Capital a/c
8000
5200
3000
16200
Oct 2 Laptop a/c
To Bank a/c
1000
1000
Oct 4 Purchase a/c
To Toys ltd
2450
2450
Oct. 5 Bank a/c
To sales a/c
1500
1500
Oct 12 Repairing for laptop a/c
To cash a/c
80
80
Oct. 18 Toys Ltd a/c
To purchase return a/c
100
100
Oct 21 Bank a/c
To rent a/c
500
500
Oct 23 Cash a/c
Fred a/c
1500
400

To sales a/c 1900
Oct 23 Cash a/c
To sales a/c
500
500
Oct 24 Car a/c
To bank
2500
2500
Oct 26 Wages a/c
To bank a/c
820
820
Oct 31 Rent a/c
To bank a/c
1000
1000
Sep. 30 Drawing a/c
To bank a/c
1600
1600
Balancing the account
Bank a/c
Date Particular JF Amount Date Particular JF Amount
1-oct To capital 8000 2-oct By laptop 1000
5-oct To sales 1500 24-oct By car 2500
21-oct To rent 500 26-oct By wages 820
31-oct By rent 1000
30-
sep By drawing 1600
31-oct By bal. C/d 3080
10000 10000
Cash a/c
Date Particular JF Amount Date Particular JF Amount
1-oct To capital 5200
12-
oct By rep laptop 80
23-
oct To sales 500

23-
oct To sales 1500
31-
oct By bal. C/d 7120
Total 7200 7200
Van a/c
Date Particular JF Amount Date Particular JF Amount
1-oct To capital 3000
31-oct By bal c/d 3000
Total 3000 Total 3000
Sales a/c
Date Particular JF Amount Date Particular JF Amount
5-oct By bank 1500
23-oct By cash 1500
23-oct By Fred 400
31-oct To bal c/d 3900 23-oct By cash 500
Total 3900 Total 3900
Rent a/c
Date Particular JF Amount Date Particular JF Amount
31-oct To bank 1000 21-oct By bank 500
31-oct By bal c/d 500
Total 1000 Total 1000
Car a/c
Date Particular JF Amount Date Particular JF Amount

24-oct To bank 2500
31-oct By bal c/d 2500
Total 2500 Total 2500
Drawing a/c
Date Particular JF Amount Date Particular JF Amount
30-sep To bank 1600
31-oct By bal c/d 1600
Total 1600 Total 1600
Laptop a/c
Date Particular JF Amount Date Particular JF Amount
2-oct To bank 1000
12-oct To cash 80
31-oct By bal. C/d 1080
Total 1080 Total 1080
Capital a/c
Date Particular JF Amount Date Particular JF Amount
1-oct By bank 8000
1-oct Bycash 5200
31-oct To bal c/d 16200 1-oct By van 3000
Total 16200 Total 16200
Purchase a/c
Date Particular JF Amount Date Particular JF Amount
4-oct To toys ltd 2450 31-oct By bal c/d 2450

Total 2450 Total 2450
Toys a/c
Date Particular JF Amount Date Particular JF Amount
18-
oct To purchase return 100 4-oct By purchase 2450
31-
oct To bal c/d 2350
Total 2450 Total 2450
Fred a/c
Date Particular JF Amount Date Particular JF Amount
23-oct To sales 400
31-oct By bal c/d 400
Total 400 Total 400
Wages a/c
Date Particular JF Amount Date Particular JF Amount
26-oct To bank 820
31-oct By bal c/d 820
Total 820 Total 820
Purchase return a/c
Date Particular JF Amount Date Particular JF Amount
18-oct By toys ltd 100
31-oct To bal c/d 100

Total 100 Total 100
Laptop repair A/c
DATE PARTICULAR JF AMOUNT DATE PARTICULAR JF AMOUNT
12-
Oct To cash a/c 80
31-
Oct BY BAL C/D 80
TOTAL 80 TOTAL 80
Extracting trial balance
Trial balance as at 31st October 2020
Particular Debit Credit
Bank 3080
Laptop 1000
Cash 7120
Capital 16200
Van 3000
Purchase 2450
Sales 3900
Toys ltd 2350
Rent 500
Fred 400
Car 2500
Wages 820
Drawing 1600
Purchase return 100
Laptop repair 80
Total 22550 22550

Preparing income statement
Income statement of company for period ending 31st October 2020
Particular Amount
sales 3900
Less: COGS 2100
Gross profit 1800
expenses
repair 80
wages 820
rent 500
net profit 400
Preparing statement of financial position
Financial position of company as at 31st October 2020
Liability Amount Asset Amount
Capital 14600 Laptop 1000
Toy ltd 2350 Van 3000
400 Fred 400
Car 2500
Cash 7120
Bank 3080
Closing
inventory 250
Total 17350 17350
Brief letter explaining what drawing are concerning small business
To Linda
Subject: In relation with drawing
This is to bring to your notice that the drawings are not included in the expenses of the business.
Rather these are the personal expenses which owner undertake from the money of business.
Thus, these are deducted from the amount of capital as the drawings are used for the purpose of
personal reason. Whether the business is small or large any money withdrawn for the purpose of

personal use by the owner of the business will be treated as drawing only. Thus, for this the only
accounting treatment is to deduct it from capital within the balance sheet. This is done as the
capital is invested by the owner and if owner is using anything for personal use then it will be
deducted from the amount invested by owner only.
Thank you.
PART B
Calculating ratios
gross profit ratio
Cost of Sales 2100
Sales 3900
Gross Margin
Total Sales –
COGS/Total
Sales 46.15%
net profit ratio
Net profit 400
Sales 3900
Net profit ratio
Operating
Income/ Net
Sales 10.26%
Current and quick ratio
Current assets 10850
Current liability 2350
Inventory 250
Quick Assets
Current ratio
Current assets /
current
liabilities 4.62
Quick Ratio
(Current Assets
- Inventory) /
Current
Liabilities 4.51
Account receivable and payable period

Trade Payables 2350
Trade Receivables 400
Cost of Sales 2100
Sales 3900
Accounts Payable Days
Sales /
Inventory *365 220 days
Account receivable days
Sales /
Accounts
Receivable *
365 37 days
Analysis of performance of company with reference to ratios
From the above calculation of the ratios it is pretty much clear that the financial position
of the company is quite well. As compared to the competitors the profitability ratio are little less
positive and rest all the ratio are good of the company. Thus, here the company is having a
competitive advantage over the other competitors except for the profitability ratios.
With respect to the profitability ratio it is clear that GP ratio of company is 46.15 %
whereas of competitor is 54% which is far better. Thus, here the company has to try to increase
the sales and reduce the direct expenses. Further in case of net profit margin as well the
competitors is having 31 % and the company is having 10.26% which is very less. Thus, for
improving the net profit margin the company need to control its indirect expenses and try to
make other income increase.
With respect to the current ratio company is having 4.62 and competitor is having 2.87.
This is good for the company as company is having more of the current asset to pay off its
current liabilities. In the similar manner the quick ratio of company is 4.51 whereas the
competitor is having the acid test ratio of 1.35. This high quick ratio indicates that company is
having such quick asset which can be converted into cast at any time. This is good for the
liquidity of the company as company is in position of converting asset into cash anytime.
In addition to this the account receivable period of competitors is 50 days whereas the
company is having the collection period of 37 days which is less as compared to competitors.
This means that the company is in better position to receive the amount due from the competitors
and this is good for company and provides a competitive advantage. On the flip side with respect
to the account payable payment period of competitor was 72 days but for the company it was 220

days. This is also a good position for the company. This is particularly because of the reason that
the competitor is having only 50 days to make the payment to the creditors but on the flip side
the company is having the time period of 220 days. Thus, in this time frame the company can
easily arrange for the money and pay it to the creditors. Hence, in the end it can be said that the
financial position of company is better in overall situation as compared to the competitors. This
is particularly because of the reason that though the profitability ratio of competitors is good but
the other ratio of company is good and this is better for working of the company.
CONCLUSION
In the end from the above study it is evaluated that the recording of all business transaction is
assistive for the business as this help the company in recording all the transaction. Thus, these
provides a base for effective decision making and help the company in deciding the way a
company deals and takes decision relating to financial position based on ratio and competitors
ratio.