Recording Transactions
Introduction
Accounting plays a significant role in today’s modern business world with the prior intention of managing entities. Business in the competitive world is proliferating and coming up with innovation to make a lucrative survival in the competitive world. Additionally, the essentiality of recording the transactions in the business world will be elaborated in the specific report. The significance of bookkeeping for the entity of Anne York will be demonstrated to run the business in the market of competition. The income statement along with the financial position of Anne York organisation will be illustrated in the particular report. The sceptic regarding drawings account will be clarified by jotting down a letter which will be stated in the accounting and full fledge finance report.
Part (ONE)
i) Signifying the enumeration for “T” account
In the Books of Anne
As on, 31st Oct, 2021
ii) Showcasing the trial balance for Anne York’s entity
Books of Anne York
Trial Balance
As October. 31St, 2021
iii) Evaluating the P/ L account for October.
Books of Anne York
“Income (Profit &Loss) Statement”
As on October. 31St, 2021
iv) Showcasing Financial Position Statement of Anne York
Books of Anne York
“Financial Position Statement”
As on October. 31St, 2021
v) Gauging down a letter to Anne regarding drawings account doubt in the business organisation
Address:
Postal Code:
Subject: Enquiry regarding drawings account
To Anne,
Respected Ma‘am
The intention of sending you the email is to explicate your suspicion related to the drawings account. Suspicion occurred due to not having proper notion regarding drawings account in the business organisation. The expenditure happened when you took a small personal break to Scotland and booked a flight and comfortable rated hotel stay. These expenses are recorded under the drawings account while recording the business transaction. Therefore £1200 has been expensed for having a personal enjoyment in Scotland. The issues occurred when you did not have any idea regarding where the drawings account expenditure will be recorded effectively. Henceforth, the expenses will be deducted from the owner’s bank account via the involvement of a business entity. It is one of the most significant issues which needs to be explicated further any form of scepticism occurs.
For further explication, the expenditure of drawings account does not fall under the category of liabilities or assets. Additionally, the expenditure is recorded under the balance sheet and deducted from equities. In other words, if the expenditure is not recorded properly, there will be a lot of difficulties while tallying the balances from the counterpart of the business organisation. It is one of the biggest issues that most business organisations face if drawings expenses are not recorded appropriately. Moreover, the expenses which are done by the owner of the business does not have to pay taxation regards to it. Therefore, the expenses incurred will be solely shouldered by the owner. A drawings account is extremely significant in managing the business organisation, as it helps in tracking the business withdrawals which occurred throughout the year. This can be significant for recording minimal accounting purposes. Henceforth, the drawings account is maintained by the businesses of a sole proprietorship. Additionally, it contributes to finding out the total quantum, which is withdrawn for personal as well as business purposes, in business organisations. As it is recorded as a personal expense, the organisation does not have to bear the expenses in terms of drawings account.
I am expecting that the letter which I have jotted down will provide you with relevant information and hoping that any kind of suspicion does not exist. I have invested all my possible efforts to provide you with the entire occurrence happening in the business organisation. Accordingly, the relevancy related to the drawings account has been stated specifically. I am sending this letter with good regards and wishes for the wellbeing of your business so that it flourishes in the competitive market.
Yours Faithfully,
Rayan.
Part TWO
i) Assessing ratio analysis with effective enumeration for the month of October, 2021
Workings:
ii) Inspecting the performance of Anne York as per the month of October
Appraisal and comparison are important from the viewpoint of business organisations to make most of the opportunity in the highly competitive world. Ratio analysis helps in calculating the performance of any concerned organisation. Therefore, the business entity of Anne York is calculated with the support of the ratio analysis, which is reflected above(Tissen and Sneidere, 2019). According to the ratio enumeration, the net loss ratio analysis has been obtained with -3.75% for the firm of Anne. On the contrary, 0.02 for the competitors, this is positively more than the organisation of Anne York. As per the scenario, the firm of Anne York needs to enhance its performance in the competitive market to make its survival more strong. This impact was due to the outbreak of the global crisis, the novel coronavirus. As the entire globe is suffering due to the pandemic situation, Anne York’s business organisation has also suffered the same way. The gross profit margin for the organisation of Anne is 13.75%, and 0.08 of the profit margin is recorded for the rival’s counterpart. If analysing the stated situation, the entity of Anne York is in a more stable position in comparison with its competitor. It is observed so, that due to goodwill created by the organisation of Anne York, the business is highly responsible for the increased gross profit margin(Huang, et al., 2020). As the organisation of Anne York has been operating in the competitive market for a longer duration of time henceforth, it has been able to gain the goodwill of the organisation. The current ratio of Anne’s entity is 3.08 and 2.8 for the competitors. Again it is observed the business of Anne has managed to flourish in the market situation. It was possible due to high liquidity status in the competitive world. The entity of Anne has been operating for a long time; hence it has kept the business prepared for fighting any form of the depressed situation(Wolski and Bolek, 2016). Therefore, the entity has efficiently managed to pull the global crisis of COVID-19. The acid test ratio for Anne’s business organisation is 3.01, whereas 1.38 was for the competitors. It is observed that the organisation of Anne York’s assets is idle and have not been invested yet. The notion of re-investment has not been taken into consideration due to the pandemic situation as most of the business organisation is suffering to meet minimal survival. The organisation of Anne may not reach the level of profit margin in the competitive world by re-investing the fund henceforth; the assets are kept idle(Hiadlovský, et al., 2016). On the flip side, the competitors have invested for fluctuating notion of increasing profit margin, and therefore, their acid test ratio is comparatively less. Accounts receivable for the organisation of Anne York is 16 days and 26 days for the rivals present in the market situation. It is the merit that can be considered for the organisation of Anne that the accounts receivable period is high compared to competitors. Henceforth, it can be said that the capability of Anne York for getting back the fund from other organisations is comparatively more stable(Madushanka and Jathurika, 2018, pp.157-161). On the contrary, the competitors are in a vulnerable situation in comparison with other organisations. On the opposite side, the accounts payable period for Anne’s entity is 30 days, additionally on the same side, the payable for competitors is 17 days (Holmes, Murphy and Mayhew, 2019). Therefore, the competitors are in a stable position as compared to Anne York. The organisation is not able to pay back the fund taken by the creditors and states the business is not in a stable position. Hence, it is recommended for the business of Anne York to increase its production to make survival in the competitive world.
Conclusion
The report has analysed the importance of maintaining the accountancy department in a business organisation. It has shown the calculation of the balance sheet income statement for the business of Anne York. In addition to this, the essentiality of bookkeeping has been mentioned and enumerated effectively. Furthermore, a letter has been sent to Anne York regarding the suspicion of the drawings account has been elaborated in the business report. The performance of Anne York has been analysed with the support of ratio analysis which has been demonstrated in the report.
References
Books & Journals
Holmes, C., Murphy, E. and Mayhew, K., (2019). What Accounts for Changes in the Chances of Being NEET in the UK? SKOPE Working Paper No. 128. Centre on Skills, Knowledge and Organisational Performance (SKOPE).
Huang, Q., Zhao, X., Zhang, M., Yeung, K., Ma, L. and Yeung, J.H.Y., (2020). The joint effects of lead time, information sharing, and the accounts receivable period on reverse factoring. Industrial Management & Data Systems.
Madushanka, K.H.I. and Jathurika, M., (2018). The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), pp.157-161.
Wolski, R. and Bolek, M., (2016). Liquidity-Profitability Relationship Analysed Once Again. The Case Of Poland. European Scientific Journal, 12(7).
Hiadlovský, V., Rybovičová, I. and Vinczeová, M., (2016). IMPORTANCE OF LIQUIDITY ANALYSIS IN THE PROCESS OF FINANCIAL MANAGEMENT OF COMPANIES OPERATING IN THE TOURISM SECTOR IN SLOVAKIA: AN EMPIRICAL STUDY. International Journal for Quality Research, 10(4).
Tissen, M. and Sneidere, R., (2019). Turnover ratios and profitability ratios calculation methods: the book or average value.