Recording Business Transactions Assignment Help

Introduction

The success of a business depends on various factors. One of them is the proper recoding of the frequent and non-frequent transactions of the firm. For this purpose, there may be recording, classifying, matching and financial statements preparation for these transactions. Recording includes item wise booking them into debit and credit. This helps firm to recognize and find out immediately a transaction that is thought as important for them. Classification of transaction enables them to know certain balances for a particular account like the outstanding balances for cash, receivables. After that matching of recorded transactions facilitates to know whether there is any deficiency between these records. Furthermore, this information is used to benefit the concerned parties by making them enable to extract required information from these financial statements.

Part-1

In respect of Mel, the given transactions are recorded along with classifying them into different classes of account and then a matching process has been conducted through trial balance to scrutiny whether total debit amount equals to total credit amount. Finally, based on the transactions, both income statement and financial statement have been prepared for the month of September 2019 (Azmat, Lymer and Campbell, 2015).

a) Write double entry record the transactions in T-accounts

In the books of Mel Journal

For the year ended 30th September 2019

Date

Particulars

Debit (£)

Credit(£)

01/09/2019

Cash Account -Dr

Bank- Dr

Owner's Equity- Cr

[Business has been started with £ 5000 in Bank £900 cash]

900

5000

5900

02/09/2019

Purchase- Dr

Bill(Creditor) –Cr

[Purchased goods on credit from Bill]

900

900

03/09/2019

Office Furniture - Dr

Bank- Cr

[Bought furniture by cheque]

600

600

05/09/2019

Cash- Dr

Sales revenue – Cr

[Sold goods and money received in cash]

1100

1100

06/09/2019

Purchase- Dr

Cash- Cr

[Purchase of goods by cash]

400

400

10/09/2019

Rent Expenses- Dr

Cash- Cr

[Paid rent through cash]

400

400

12/09/2019

Stationery expenses- Dr

Bank- Cr

[Stationery brought by cheque]

200

200

18/09/2019

Bill (Creditor) - Dr

Bank- Cr

[Paid to Bill for due]

500

500

21/09/2019

Purchase- Dr

Bill (Creditor) – Cr

[Rent revenue received]

100

100

23/09/2019

Till (Debtor)- Dr

Sales revenue- Cr

[Sold goods on credit to Till]

400

400

23/09/2019

Cash- Dr

Rob(Debtor)

Sales revenue – Cr

[Sold goods on cash and credit to Rob]

1000

500

1500

24/09/2019

Vehicle- Dr

Bank- Cr

[Car bought for business through cheque]

1500

1500

30/09/2019

Wage expense- Dr

Cash- Cr

[Wages paid on cash]

800

800

30/09/2019

Withdrawal- Dr

Office Equipment- Dr

Cash- Cr

[Owner withdrawal cash from the business and purchase computer for office]

400

400

800

Total

15100

15100

b) Balance the accounts and bring down an opening balance:

T-Accounts

General Ledger of Bill

Cash

2019 £

2019 £

Sept 1 Owner’s Equity 900

Sept 6 Purchase 400

Sept 5 Sales revenue 1100

Sept 10 Rent Expenses 400

Sept 23 Sales revenue 1000

Sept 30 Wage expenses 800

Sept 30 Withdrawal 400

Sept 30 Office equipment 400

Sept 30 Balance carried down 600

Oct 1 Balance brought down 600

Bank

2019 £

2019 £

Sept 1 Owner’s Equity 5000

Sept 3 Office furniture 600

Sept 12 Stationery expenses 200

Sept 18 Bill (creditor) 500

Sept 24 Vehicle 1500

Sept 30 Balance carried down 2200

Oct 1 Balance brought down 2200

Owner's Equity

2019 £

2019 £

Sept 1 Cash Account 900

Sept 30 Balance carried down 5900

Sept 1 Bank 5000

Oct 1 Balance brought down 5900

Purchase account

2019 £

2019 £

Sept 2 Bill(Creditor) 900

Sept 6 Cash 400

Sept 30 Balance carried down 1400

Sept 21 Bill(Creditor) 100

Oct 1 Balance brought down 1400

Bill(Creditor) Account

2019 £

2019 £

Sept 18 Bank 500

Sept 2 Purchase 900

Sept 30 Balance carried down 500

Sept 21 Purchase 100

Oct 1 Balance brought down 500

Office Furniture

2019 £

2019 £

Sept 3 Bank 600

Sept 30 Balance carried down 600

Oct 1 Balance brought down 600

Sales

2019 £

2019 £

Sept 30 Balance carried down 3000

Sept 5 Cash 1100

Sept 23 Till (Debtor) 400

Sept 23 Rob(Debtor) 500

Sept 23 Cash 1000

Oct 1 Balance brought down 3000

Rent expenses

2019 £

2019 £

Sept 10 Cash 400

Sept 30 Balance carried down 400

Oct 1 Balance brought down 400

Stationery Expenses

2019 £

2019 £

Sept 12 Bank 200

Sept 30 Balance carried down 200

Oct 1 Balance brought down 200

Office Equipment

2019 £

2019 £

Sept 30 Cash 400

Sept 30 Balance carried down 400

Oct 1 Balance brought down 400

Debtor (Bill and Rob) Account

2019 £

2019 £

Sept 23 Sales revenue 400

Sept 30 Balance carried down 900

Sept 23 Sales revenue 500

Oct 1 Balance brought down 900

Vehicle

2019 £

2019 £

Sept 24 Bank 1500

Sept 30 Balance carried down 1500

Oct 1 Balance brought down 1500

Wage expense

2019 £

2019 £

Sept 30 Cash 800

Sept 30 Balance carried down 800

Oct 1 Balance brought down 800

Withdrawal

2019 £

2019 £

Sept 30 Cash 400

Sept 30 Balance carried down 400

Oct 1 Balance brought down 400

c) Extract a Trial balance as at 30th September 2019

Mel Companies Trading Trial balance as at Sept 30, 2019

Accounts titles

Debit £

Credit £

Cash

600

Bank

2200

Owner’s equity

5900

Purchase account

1400

Bill(Creditor)

500

Office equipment

400

Sales revenue

3000

Rent expenses

400

Furniture

600

Stationary expense

200

Debtor

900

Vehicle

1500

Wage expenses

800

Withdrawal

400

Total

9400

9400

d) Prepare an Income Statement for the period ended 30th September 2019

Mel

Income Statement

For the year ended 30th September 2019

Particulars

(Debit) £

(Credit) £

Sales Revenue

Less: Cost of Sales

Opening Stock

Add: Purchases

Less: Closing Stock

3000

1400

(500)

(900)

Gross Profit

2100

Less: Expenses:

Rent expenses

Stationery expenses

Wages

400

200

800

(1400)

Net profit:

700

E) Prepare a Statement of Financial Position as at 30th September 2019

Mel

Financial Position

30th September 2019

Particulars

£

£

Capital:

Mel's contribution

Withdrawals

Net profit

Assets:

Cash

Bank

Debtor

Stock/Inventory

Office equipment

Furniture

Vehicle

Less: Liability

Bill

Net Assets:

5900

(400)

700

600

2200

900

500

400

600

1500

6200

6700

(500)

6200

Part B

1) Calculating the ratios for Mel

  1. a) Net profit margin:

= *100

= *100

= 23.33%

  1. b) Gross profit margin:

= *100

= *100

= 70%

  1. c) Current ratio:

=

=

= 8.4:1

  1. d) Acid test ratio

=

=*100

= 7.4:1

  1. e) Accounts receivable collection period

=

= *365 = 109.5 Days

  1. f) Accounts payable payment period

=

=

= 130.36 Days

2. Analysis of the performance based on the ratios

Particulars

Mel Ratio

Competitors Average

Net profit margin

23.33%

16%

Gross profit margin

70%

65%

Current ratio

8.4x

4.50x

Acid test ratio

7.4x

4.0x

Accounts receivable collection period

109.5 days

100 days

Accounts payable payment period

130.36 days

105 days

Net profit margin:

It simply dictates the probability of a firm. This ratio interprets revenue or sales of a firm in respect to its net profit. Hence, the extent of contribution of revenue to net profit can be easily estimated from this ratio. This ratio of Mel indicates that Mel is able to achieve 23.3% profit only from sales out of the net profit recorded for Mel. Moreover, she is also doing pretty much good than her competitor as her competitor is able to make only 16% profit from its sales. As a result, Mel’s business is more profitable than that of her competitors (Larson, Kalagnanam and Jensen, 2007).

Gross profit margin:

Another layer of profitability is gross margin which can be found by dividing the gross profit by the sales. It is efficient because it tells what is the remaining portion of sales after cost of goods production which will be used for further operational cost of a firm. Mel’s gross profit margin is 70% meaning that only 30% of the sales is the cost of production. This is also an indication that she can manufacture her goods in a cheaper process. On the other hand, her competitor can do it by having 65% gross profit margin which is lower than that of Mel’s. So, the cost of production for Mel’s business is lower than that of her competitors and Mel obviously will have more cash flow from gross profit margin than her competitors which can fuel further operation function more smoothly for Mel (Kimmel, Weygandt and Kieso, 2010).

Current ratio:

The name implies that it deals with the current portion of assets and liabilities. It can be calculated by dividing the total current assets by the total current liabilities. Current ratio indicates whether a firm is able to write off the current liabilities with its current assets, thereby measuring the liquidity level of a firm. Mel has an outstanding level of liquidity i.e. they have current assets equal to 8 times of its current liabilities. Although her competitor also has sufficient level of current assets to pay off its short-matured obligations, it is almost half level lower than Mel’s business (Williams, Haka and Bettner, 2017)

Acid test ratio:

It makes the liquidity level measurement more perfect because it subtracts comparably higher illiquid items like inventory and includes only the most liquid assets like cash. It is more logical as any current obligations can be easily paid off by these liquid assets (Lerner, Gokarn and Lerner, 2009). Also, in this ratio, Mel is in a very good position as she has more than standard level of acid liquidity. As her competitors have lower level of acid liquidity than her, she will obviously some competitive advantage over her competitors.

Accounts receivable collection period:

This ratio shows the average day it takes for a firm to collect its account receivables. The higher this ratio, the more probability that receivables will be realized later. It takes almost 110 days for Mel to collect from its receivables while her competitors need only 100 days for the same purpose. Although customer reputation for Mel will be higher compared to her competitor, she will not be in a better liquidity position to pay off its operational expenses (Horngren and Harrison, 2007).

Accounts payable period:

This indicates average time a firm takes to pay off its payables. If a firm can delay its payment, it can use the cashflow more for other operational purposes. So, higher account payable period is actually good for good cash conversion cycle. Mel is in an advantageous position because whereas her competitors are paying its payable after 100 days later, Mel is paying after 130 days. As a result, he can utilize the unpaid portion for more productive purposes and can gear up her production facilities. But he also should be careful whether excessive delay doesn’t result into bad reputation (Gaffikin, 2003).

Conclusion

Like every other activity, accounting has also some specific purposes. From the very beginning like recording, classifying, matching and reporting an accountant has to keep in the mind that the resulting report is meant for some individuals including investors, auditors, corporations, tax companies and above all govt. All of these respective parties will go through the financial statements to take their desired decisions. Hence, it is very much important to prepare financial statements carefully so that the concerned parties may use the statements reliably. Finally, recording, classifying, matching and preparing financial statements should be in a way so that every material and relevant transactions are compiled properly.

References

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