Recording Business transaction

Assignment A1
Table of Contents
Introduction................................................................................................................................1

Part A.........................................................................................................................................2

1. Setting up a Decoration Business....................................................................................2

2. Identification of Decision-makers of P&G.....................................................................5

Part B..........................................................................................................................................6

1. Journal................................................................................................................................6

2. Ledgers and Trial Balance.................................................................................................7

3. Income Statement.............................................................................................................13

b) Prediction based on the performance of Income Statement............................................14

Conclusion................................................................................................................................15

Reference list............................................................................................................................16

List of Figures

Figure 1:Journal Entries of F Polk.............................................................................................6

Figure 2: Ledgers Accounts.....................................................................................................11
Figure 3: Trial Balance.............................................................................................................12
Figure 4: Income Statement.....................................................................................................13
Figure 5: Income Statement for Prediction..............................................................................14

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Introduction
Considering the entrepreneurial spirit, an individual may involve structurally to prepare and
run a business. Among several business structures, a sole trader is quite easy, informal and
hassle-free. The owner takes the full share of profits in compensation for the complete
responsibility of debts incurred to the business. To establish a sole proprietorship business,
various steps can be incorporated. From envisioning the business idea to establishing legal
status to registering under legal regulations, one must maintain a proper balance to
materialise his or her business (Needle and Burns, 2014). Furthermore, in a business, various
stakeholders partake in the decision-making process. They have a greater influence regarding
investment and operational issues. Thus, organisations are bound to publish their financial
statements and information, while aiming to perform their best to attract more investment.
Thus, the implications of recording are pervasive and wide-ranging. In various forms, an
organisation can keep its records (Spengler and Klein, 2015). In this report, this first part
includes key steps related to setting a sole trader business considering the case of David
Green. Later, P&G- a listed organisation at London Stock Exchange has been taken into
account to identify its key stakeholders. In the later part, accounting problems have been
solved by using journal, ledgers, trial balance and income statement.

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Part A
1. Setting up a Decoration Business
Considering the requirements of forming a sole trader business, those are easy and smooth to
follow. Sole traders and small businesses consist of around 55% of the total private business
sector in the UK. In number, those businesses are over three million whose contribution in
creating jobs and encouraging entrepreneurial spirit is undeniable. This type of business is
now getting more popularity, as an individual can easily start this sort of business in his or
her chosen location (Añón and Driffield, 2019). In this case, David Green intends to initiate a
decoration business. As he mentioned his desire to take the full responsibility for all debts of
his business, a sole trade business can be a suitable option for him. Some major steps to form
a sole trader business are given below.

Step 1: Formation of Business Idea

An idea can be a vision or desire that an individual wants to bring in reality or transform it
through realistic metrics. In terms of a business idea, one must look beyond the line
indicating scopes for uniqueness and newness. Here, the implications of entrepreneurial spirit
and analytical ability are extensive and noteworthy. Through one’s scrutiny, an idea can take
a shape. Thus, an entrepreneur aims to materialise an idea that can fulfil existing or potential
needs of customers. S/he focuses on the existing market gap to adjust his or her idea through
practical and market-oriented solutions. As this step is an initial stage of forming a business,
David can gather details related to his idea (Burg and Mann, 2015). To ensure more
uniqueness, he can extent his floral products, as well as, the décor accessories. He can include
an e-commerce-based platform through which he can take and deliver his floral products and
accessories. Even, the platform can include local requirements that may add event-based
orders.

Step 2: Collection of Market Data

Market research provides more realistic insights regarding the chosen business idea. An
individual collects data through primary or secondary sources to check the feasibility of the
idea. Assessment of location, target customer and segmentation and so on can be part of this
step. The potential growth of market can be taken account to reflect on analysing the
projection. One must assess available opportunities while considering the threats associated
with the plan (Armstrong and Kotler, 2020). Here, David can conduct some analyses by

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taking feedback from potential customers and secondary information. Those data and
information can help him scrutinise his plan. Opportunities available in his location can be
considered by taking the strengths of his business idea into account. Based on various report,
the decoration sector is expected to increase around 20%, as the trend of home décor and
floral decoration is increasing among the UK’s household. In this sector, customers prefer
wide-range of floral and décor options that can match their taste and lifestyle.

Step 3: Preparation for Business Plan

A business plan includes the tentative modus operandi of a business, including sales,
marketing and advertising strategies, location selection, the profile of potential customers,
sales and profit projection and so on. A well-detailed business plan attracts more potential
investment scopes for a business. Thus, one needs to highlight every critical point related to
his or her business idea (Mckeever, 2019). In this step, David is required to prepare a
business plan based on his idea and findings from market details. He can project possible
sales volume and growth highlighting the potential demand of décor items among target
customers. Multiple online and offline marketing and advertising plans can be included in
this step that aims to attract customers. Even, sources of funds and allocation of those should
be mentioned in the business plan.

Step 4: Arrangement of Fund

Before arranging funds from sources, one must consider fund amount, debt ratio, cost of
capital, interest rate and other financial aspects of the overall economy and the business idea.
Later, alternative sources can be assessed to find the appropriate source. Several sources can
be considered, such as funds from banks or financial organisations, loans from friends and
family, grants from NGOs (Northington, 2014). In this case, David can consider a loan from
banks. As he is responsible for his liabilities, he can take a loan from the bank through his
collateral. To get the fund, he needs to submit valid documents of his property and business.
A business plan can be required. Otherwise, he can take a loan from his friends and family
members while combining his savings. That may provide a sufficient amount of funds to start
the business.

Step 5: Determination of Business Structure

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Among various business structures, sole traders are common and easy to form. This form
requires minimum formalities. David’s inclination indicates sole trader business. He needs to
take full responsibility for the debts while enjoying profits alone.

Step 6: Registration of Business

By registering a business, a business can get a legal status that allows it to get into legal
transactions with others (Olarreaga et al., 2007). To register the business, David needs to go
to the Trademark office. Before that, he needs to pick a name that can be unique. He can
register his business name and get legal status.

Step 7: Formalities for Tax and VAT Return

Tax and VAT are part of the legal aspects of a country. Those tax and VAT laws might differ
depending on the structure and nature of employment. David plans to be a sole. To file his
income tax on profits, he must first register with HMRC online. A sole trader's common
accounting year ends on April 5. If his venture’s annual revenue exceeds £85,000, he must
register for VAT (Government Digital Service, 2020). David must also keep records of
employees' tax information, for which he might utilise record-keeping software. Depending
on the area, land and property taxes may be included.

Step 8: Authorised Permission

A business may require gathering permission to start its operations. Various state-owned
agencies and local authorities are responsible to oversee these issues (Spengler and Klein,
2015). As David aims to start a sole trader business, he may require to collect a licence from
the local authority. If required, local authorities can seek documents to provide permission.
Then, he can start his business.

Step 9: Revision of Employees’ Responsibilities

Employees are responsible to execute the responsibilities assigned to them. Employers need
to assess those responsibilities to avoid internal clashes. Employees should have a clear
direction of their roles (Senara, 2015). Here, David needs to analyse his role first. As he
wants to take some responsibilities regarding accounting, he can assign other tasks to
employees.

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2. Identification of Decision-makers of P&G
The London Stock Market (LSE) one of the world’s prominent stock exchanges is considered
as a house for well-known firms trading their stock in LSE. Procter and Gamble Co (P&G),
with a market valuation of over £265 billion, is a recognised and reputable corporation that
manufactures items for the home, personal care, and hygiene. At the LSE, this American
brand is denoted by the ticker symbol 0NOF: LSE. While presenting the report, each share of
P&G has been trading at around £165 (londonstockexchange.com, 2022), as the corporation
performs better in the field of FMCG. Its share performance reported over 25% annual return.
Since October 2021, its share price has been witnessing a surge. Considering its corporate
profile, P&G is a company that incorporates various brands, such as Gillette, Fixodent, Vicks.
Being known for its comprehensive supply chain management network, P&G can operate on
a large scale. As a result, considering the broad scale of P&G's investors, the requirement for
financial responsibility is crucial. P&G publishes its financial reports and letters to
shareholders on its website and in print as part of its corporate governance to inform
shareholders of the company's performance (Procter & Gamble, 2021). P&G reported a 6%
rise in organic sales and an 11% increase in profits per share in 2021. Despite its operations
being hit by Covid-19, P&G's quarterly growth has averaged 9 percent. Also, P&G recently
acquired VitaminHaus Pty Ltd and the decision was made possible by lenders and investors
who remain optimistic about P&G's financial performance. The main point of publishing
financial data and information is to persuade existing and potential investors and shareholders
(The Financial Times, 2021). As these stakeholders require the data to do financial and
accounting analysis to predict the growth and viability of their investment, those data and
information can play a vital role to influence the key decision-makers. These decision-makers
and authorised authorities base their decisions on publicly accessible statistics, news, and
information while reflecting on their own risk thresholds and desired yield (Sandy, 2017).

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Part B
1. Journal

Figure 1:Journal Entries of F Polk

Source: (OWN)

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2. Ledgers and Trial Balance
a) Ledgers

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11
Figure 2: Ledgers Accounts

Source: (OWN)

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b) Trial Balance

Figure 3: Trial Balance

Source: (OWN)

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3. Income Statement
a) Income Statement

Figure 4: Income Statement

Source: (OWN)

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b) Prediction based on the performance of Income Statement

Figure 5: Income Statement for Prediction

From the above-mentioned table, it is evident that the company had been witnessing a steady
growth from 2013 to 2019. As the economy got hit by the recession caused by the COVID-
19, the company suffered this unsystematic risk. Consequently, the revenue flow had
predicted a loss in 2020 and 2021. Although the company may be able to achieve financial
growth, its operating expenses are yet to be covered by the overall sales performance. The
sales may not be able to cover up other expenses, predictably, the revenue may be reported in
negative figures, which already occurred in 2020. Such losses may include various
unsystematic risks that have a negative influence on financial performance. One of these
concerns is the continued recession and financial crisis experienced by companies as a result
of COVID-19 and Brexit. Initially, Brexit brought new regulations and rules in conducting
operations that may take time to bring benefits for businesses. At present, the economy is
struggling with the labour shortage, imposed extra tariffs and increasing fuel prices. Later, in
the pandemic, the frequent lockdowns and posed restrictions have had a severe impact on the
entire economy. As a result, sales dropped due to lower consumer confidence. Recently, a
new variation known as Omicron posed even another threat to the UK's improving economy.
Despite facing numerous challenges, the economy is expected to recover by 2022, according
to reports from multiple sources (Rocha et al., 2020). Thus, by 2022, it can be expected that
the company may witness profit.

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Conclusion
In Part A, the steps related to starting a sole trader business have been mentioned. Here, the
case of David Green has been taken into account. Later, the identification of decision-makers
of P&G has been conducted while reflecting on its financial and operational performance. In
Part B, journal, ledgers, trial balance and income statement are added based on the
requirements of the module. Later, a prediction of revenue for 2022 has been made based on
the given income statement.

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Reference list
Añón Higón, D. and Driffield, N., (2019). Exporting and innovation performance: Analysis
of the annual Small Business Survey in the UK. International Small Business Journal, 29(1),
pp.4-24.

Armstrong, G. and Kotler, P. (2020). Marketing : an introduction. Upper Saddle River:

Pearson.

Baroncelli, E., Krivonos, E. and Olarreaga, M., (2007). Trademark protection or

protectionism?. Review of International Economics, 15(1), pp.126-145.

Burg, B. and Mann, J.D. (2015). The go-giver : a little story about a powerful business idea.
London: Portfolio Penguin.

Cowling, M., Brown, R. and Rocha, A., (2020). Did you save some cash for a rainy COVID-
19 day? The crisis and SMEs. International Small Business Journal, 38(7), pp.593-604.

Government Digital Service (2020). Set up as a sole trader. [online] GOV.UK. Available at:
https://www.gov.uk/set-up-sole-trader.

londonstockexchange.com (2022). Market Stock. [online] www.londonstockexchange.com.

Available at: https://www.londonstockexchange.com/market-stock/0NOF/procter-gamble-
co/overview.

Mckeever, M.P. (2019). How to write a business plan. Berkeley, California: Nolo.

Needle, D. and Burns, J., (2014). Business in context: An introduction to business and its
environment. Boston: South-Western Cengage Learning.

Northington, S. (2014). Finance. New York, Ny: Ferguson’s.

Procter & Gamble (2021). Introduction and Fiscal year 2021 Results. [online] Procter &
Gamble. Available at: https://us.pg.com/annualreport2021/introduction-and-fy-results/.

Sandy, W. (2017). Link Your Business Plan to a Performance Plan. Journal of Business
Strategy, 11(6), pp.4–8.

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Senara, M.E. (2015). 9 Steps for Starting a Business | Founder’s Guide. [online] Founder’s
Guide. Available at: https://foundersguide.com/steps-to-start-a-business/.

Spengler, E.H. and Klein, J. (2015). Introduction to Business. New York, Mcgraw-Hill.

The Financial Times (2021). Procter & Gamble Co, 0NOF:LSE summary - FT.com. [online]
markets.ft.com. Available at: https://markets.ft.com/data/equities/tearsheet/summary?
s=0NOF:LSE

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