Analysis of Financial Transactions and Financial Ratios for Gulf Residential Services

Nominal Ledger Entries and Trial Balance

Nominal Ledger Entries

1. Capital Introduced:

– Dr. Capital A/C 24,000
– Cr. Bank A/C 24,000

2. Purchase of Goods:

– Dr. Purchases A/C 7,000
– Cr. Bank A/C 7,000

3. Sale of Goods on Credit:

– Dr. Bahrain Mgt Co A/C 4,400
– Cr. Sales A/C 4,400

4. Payment of Wages:

– Dr. Wages A/C 800
– Cr. Bank A/C 800

5. Loan from Bank:

– Dr. Bank Loan A/C 18,000
– Cr. Bank A/C 18,000

6. Purchase of Goods on Credit:

– Dr. Super GCC Supplies A/C 12,000
– Cr. Creditors A/C 12,000

7. Sale of Goods for Cash:

– Dr. Bank A/C 7,000
– Cr. Sales A/C 7,000

8. Purchase of Delivery Van:

– Dr. Delivery Van A/C 10,000
– Cr. Bank A/C 10,000

9. Purchase of Stationary:

– Dr. Stationary A/C 40
– Cr. Bank A/C 40

10. Payment of Electricity Bill:

– Dr. Electricity Expense A/C 1,000
– Cr. Bank A/C 1,000

11. Sale of Goods on Credit:

– Dr. Jumeriah Estates A/C 1,600
– Cr. Sales A/C 1,600

12. Payment to Supplier:

– Dr. Creditors A/C 3,600
– Cr. Bank A/C 3,600

13. Receipt from Bahrain Mgt Co:

– Dr. Bank A/C 900
– Cr. Bahrain Mgt Co A/C 900

Initial Trial Balance as at 31st May 2024

Account Debit ($) Credit ($)
Capital 24,000
Purchases 7,000
Sales 13,000
Wages 800
Bank Loan 18,000
Super GCC Supplies 12,000
Bahrain Mgt Co 5,500
Delivery Van 10,000
Stationary 40
Electricity Expense 1,000
Jumeriah Estates 1,600
Creditors 15,600
Bank 28,060

Financial Ratios for Gulf Residential Services

Financial Ratios Calculation

1. Profit Margin Ratio = (Net Profit / Revenue) * 100
2. Gross Profit Margin Ratio = (Gross Profit / Revenue) * 100
3. Return on Assets (ROA) = (Net Income / Total Assets) * 100
4. Return on Equity (ROE) = (Net Income / Shareholder’s Equity) * 100
5. Current Ratio = Current Assets / Current Liabilities
6. Quick Ratio = (Current Assets – Inventory) / Current Liabilities
7. Debt-to-Equity Ratio = Total Debt / Shareholder’s Equity
8. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Performance Analysis and Challenges

– The financial ratios provide insights into the profitability, efficiency, liquidity, and solvency of Gulf Residential Services.
– Based on the ratios calculated, assess the company’s performance relative to industry benchmarks and historical data.
– Analyze potential challenges such as low cash reserves leading to cash flow problems, inventory management issues affecting liquidity, and debt levels impacting financial stability.

Importance of Ratio Analysis

– Despite its drawbacks like oversimplification and reliance on historical data, analysts use ratio analysis due to its ability to provide a quick snapshot of a company’s financial health.
– Ratios help in comparing performance over time, benchmarking against industry peers, and identifying trends that may impact the company’s future prospects.

In conclusion, thorough analysis of financial transactions through nominal ledger entries and calculation of financial ratios provides valuable insights into the financial health and performance of Gulf Residential Services. By understanding the company’s strengths, weaknesses, and potential challenges, stakeholders can make informed decisions to support the long-term success and sustainability of the business operations.