Part A Linda started the business of buying and selling toys in Oxford on the 1st of October 2020. She is preparing accounts to 31st October 2020. She contributed to

Part A Linda started the business of buying and selling toys in Oxford on the 1st of October 2020. She is preparing accounts to 31st October 2020. She contributed to the business with £8,000 in the Bank, £5200 cash, and 3,000 Van. The transactions during the month are as follows: 2/10 Bought a new Laptop £1000 from a local shop in Oxford and paid by cheque 4/10 Purchased toys (goods) £2450 on credit from Toys Ltd 5/10 Sold goods for £ 1500 and received the money in Bank 12/10 Paid in Cash £80 for repairing laptop 18/10 Goods returned to Toys Ltd £100 21/10 Received rent for part of the premises by cheque £500 23/10 Sold goods to Fred £1900; from this amount £1500 cash received immediately and the rest remains on credit. 23/10 Sold goods of £500 to David and received cash 24/10 Bought a second-hand car from Oxford motor vehicle auction for business use by issuing a cheque £2500 26/10 Paid the month’s wages to the part-time shopkeeper by cheque £820 30/10 Paid rent by cheque £1000 31/10 Linda has also paid £1600 from the business bank account for a week-long holiday in Florida. She has asked you whether she can class this as business expenses since it has enabled her to recover from the stresses and strain of running her own business. Required: a) Write double entry record the transactions in T-accounts b) Balance the accounts and bring down an opening balance c) Extract a Trial balance as at 31st October 2020 d) Prepare an Income Statement for the period ended 31st October 2020 The closing inventory is £ 250.00 e) Prepare a Statement of Financial Position as at 31st October 2020 f) Write a brief letter to Linda explaining what drawings are concerning small business and answering her query concerning her holiday. PART B i. According to the information available in Income and Financial position statements in Part A, calculate the following ratios for Linda’s business Competitors Average • Net profit margin 31% • Gross profit margin 54% • Current ratio 2.87x • Acid test ratio 1.35x • Accounts receivable collection period 50 days • Accounts payable payment period 72 days ii. Assuming Linda’s competitor’s ratio averages are as stated above: Analyse her performance with reference to each of the ratios calculated in comparison to those of her competitor.

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