Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
Introduction to Financial Accounting
A. Professor Dr
Hossam El Said El Wakiel
Assistant Professor of Accounting
Faculty of Commerce & Business Administration
Helwan University
2023
‫‪Ali-Al-Sayed-Ali-Abdul‬‬‫‪Rahman_40210_10521575039‬‬
‫بسم اهلل الرمحن الرحيم‬
‫ََ ْ َ‬
‫َ َ َّ َّ َ‬
‫ب جفا ُء‬
‫(فأما الزبدُ فيذه ُ‬
‫َ َ َّ َ َ َ َّ َ َ َ ْ‬
‫ف‬
‫اس فيمكثُ ِ ُ‬
‫وأ ُمُا ُماُينفعُ الن ُ‬
‫َ َ ََ ْ‬
‫َ ْ‬
‫ك يض ِربُ‬
‫ض كذ ِل ُ‬
‫ُِ‬
‫األر‬
‫َّ َ ْ َ َ‬
‫ال ُ)ُ ُ‬
‫اَّللُاألمث ُ‬
‫صدق اهلل العظيم‬
‫سورة الرعد‬
‫من اآلية ‪17‬‬
‫َ‬
Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
Course Description
Course Title: Introduction to Financial Accounting
Credit Units: 1.5
Level: 2 - Arabic - regularity- affiliation
Course Objectives:
Brief description of the main learning outcomes for
students enrolled in the course.
Upon completion of the course, students will be able to:
- know concept of accounting.
- know users of accounting information.
- know accounting assumptions and accounting principles.
- Explain the basics of the financial statements.
- Define assets, liabilities, owner's equity, revenues, and expenses and
how these items can be measured.
- identify the accounting equation and the impact of transactions on
accounting equation
- Describe the entire accounting cycle.
- Explain how to prepare the adjusting journal entries.
Course Content:
- The Conceptual Framework of Accounting.
- Financial Statements.
- Basic Accounting Equation.
- Accounting Cycle.
- Adjusting the Accounts.
Name of faculty member responsible for the course:
Dr. Hossam El Said El Wakiel
Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
Preface:
This book is an introduction to the study and
understanding of the fundamentals or basics of financial
accounting, as it contains the following topics such as:
The conceptual framework of Accounting, Financial
statements, the basic accounting equation, accounting
cycle, adjusting the accounts.
In chapter one: we discussed the topic of
"The conceptual framework of accounting", This
chapter aims to enable the reader to identify the:
concept of accounting, steps of financial accounting
(accounting process), purpose of accounting, users of
accounting
information,
accounting
assumptions,
accounting principles.
In chapter two: we discussed the topic of
"financial statements", This chapter aims to enable the
reader to identify the: types of financial statements,
purpose of preparing, forms and components of income
statement and balance sheet, definition, and types of
revenues, expenses, Assets, Liabilities and owner's
equity, accounting equation.
Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
In chapter three: we discussed the topic of "The
Basic Accounting Equation", this chapter aims to enable
the reader to identify the: accounting equation and the
impact of transactions on accounting equation.
In chapter four: we discussed the topic of
"Accounting Cycle", this chapter aims to enable the
reader to identify the: steps of accounting cycle through
record transaction in a journal according to the rule of
double-entry, post from the journal to the ledger, and
prepare a trial balance, the form of the journal, the form
of the ledger, the form of trial balance, meaning of
journalizing, Meaning of posting.
In chapter five: we discussed the topic of
"Adjusting the Accounts", this chapter aims to enable
the reader to identify the: types of adjusting entries
through prepayments (prepaid expenses, unearned
revenues), and Accruals (Accrued expenses, accrued
revenues), the impact of adjusting accounts on financial
statements (income statement and balance sheet).
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5
Contents
Chapter 1
The Conceptual Framework of Accounting.
7-24
Chapter 2
Financial Statements
25-43
Chapter 3
The Basic Accounting Equation
44-62
Chapter 4
Accounting Cycle
63-93
Chapter 5
Adjusting the Accounts
94-114
References
REFERENCES
115-116
Glossary
Glossary
117-128
General Questions & Exercises
129-134
Questions
& Exercises
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Chapter 1: The Conceptual Framework of Accounting
- Definition of Accounting.
-Purposes of Accounting.
- Difference Between Bookkeeping and Accounting
- Users of Accounting Information.
- Accounting Assumptions.
- Accounting Principles.
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Chapter one
The Conceptual Framework of Accounting
Learning Objectives:
-Define accounting and explain the purpose of accounting
-Describe the
accounting
difference
between
bookkeeping
-Identify the types of people who use accounting
information, and how they use it.
- Identify assumptions, and principles of accounting
- Identify classification of business organization.
and
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CHAPTER ONE
The Conceptual Framework of Accounting
1- Definition of Accounting:
we can define Accounting as "the process of
identifying, recording and communicating economic
events of an organization to those who make economic
decisions."
When we look at this definition is clear to us that it
consists of three basic words and that through them, we
can clarify the action steps of financial accounting
(accounting process) and basic function, as three functions,
as follows: 1) Identifying:
Means that accounting identifies all transactions and
economic events, which carried out by business entity, and
determining their nature whether they are financial
operations such as purchases, sale, collection, or payment,
or non-financial operations such as appointing an employee
or promoting or dismissing an employee. Whereas,
accounting focuses only on financial transactions that can be
expressed or measured in a monetary unit, meaning
determining their value in Egyptian pounds, for example,
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11
while non-financial transactions that are difficult to measure
in a monetary unit are ignored.
2) Recording:
After measuring all transactions, they are recording in
the accounting books are as follows:
-
Recording transactions in journal according to doubleentry rule, where recording business activities requires
keeping a historical record of transactions and events
measured by monetary unit.
Classify transactions then posting to ledger.
Summarize transactions by preparing trail balance.
3) Communicating:
Through the preparation of financial statements, which
is represented in: -
Income statement.
Balance sheet.
Statement of owner's equity.
Statement of cash flows.
You should understand that the accounting process
includes the bookkeeping function.
Bookkeeping usually involves only the recording of
economic events. It is therefore just one part of the
accounting process, in total; accounting involves the entire
process of identifying, recording, and communicating
economic events.
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2- Purposes of Accounting:
The main purpose of accounting is to prepare financial
statements that will help users make informed decisions.
This achieves from sub objectives as follows: -
Determine business entity result of the profit or loss
during the financial period.
-
Providing reports showing the financial position at the
end of each financial period.
-
Helps management manage business entity.
-
Helps stakeholders monitor business entity.
3- The difference between Bookkeeping and Accounting:
Many individuals mistakenly consider bookkeeping and
accounting to be one and the same. This confusion is
understandable because the accounting process includes the
bookkeeping function. However, accounting also includes
much more. Bookkeeping usually involves only the
recording of economic events and is therefore just one part
of the accounting process. In total, accounting involves the
entire
process
communication.
of
identification,
recording,
and
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4- Users of Accounting Information:
The information that a user of financial information
needs depends upon the kinds of decisions the user makes.
There are two broad groups of users of financial
information. Internal users and external users.
1) Internal Users:
Internal users are individuals inside the firm who want
financial information about the firm. They include:
– Management:
Internal users of accounting information are managers
who plan, organize, and run the business: These include
marketing managers, production supervisors, finance
directors, and company officers.
– Employees:
Payment of bonus depends upon the size of profit
earned by business entity, the demand for wage rise, bonus,
better working conditions depend upon the profitability of
the firm and in turn depends upon financial position.
2) External Users:
External users are individuals and organizations
outside the firm who want financial information about the
firm. They include:
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– Investors:
Investors use accounting information to make decisions
to buy, hold, or sell ownership shares of a firm.
– Creditors:
Such as suppliers (Persons who supply goods on
account), bankers, use accounting information to evaluate
the ability of firms to pay on due dates before lending
money.
– Customers:
These groups want to get the goods at reduced price
and high quality; therefore, they are in continue need of
information about the firm's products, sales policies, credit
status, discount terms and method of payment, and
interested in whether the firm will continue to honor product
warranties and support its product lines.
– Governmental Entities:
Governments Entities are interested of accounting
information about firms, such as Taxing authorities want to
know if the company complies with the tax laws, Labor
unions want to know if the owners could pay increased
wages and benefits, stock exchange want to know the
companies' compliance with the rules and instructions
related to the presentation of the financial statements.
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5- Accounting Assumptions:
Accounting assumptions provide a foundation for
recording the transactions and preparing the financial
statements there from. There are four basic assumptions that
are considered as cornerstones of the foundation of
accounting, these are:
1) Accounting Entity Assumption
2) Money Measurement Assumption
3) Going Concern Assumption
4) Periodically Assumption
1) Accounting Entity Assumption
Accounting entity assumption requires that the activities
of the entity be kept separate and distinct from the activities
of its owner. A business entity can take one of three legal
forms, proprietorship, partnership, and corporation.
A) Proprietorship
A business owned by one person, the owner is often
the manager/operator of the business, usually only a
relatively small amount of money or capital is necessary to
start in business as a proprietorship; the owner receives any
profit, suffers any losses, and is personally liable for all
debts of the business.
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B) Partnership
A business owned by two or more persons, called
partners. They requirement is an agreement between
partners to run a business together. The agreement can be
either oral or written and usually indicates how income and
losses are to be shared; a partnership is not legally separate
from its owners like a proprietorship. This means that each
partner's share of profits is reported. It also means unlimited
liability for its partners.
C) Corporation
A business legally separate from its owners, meaning it
is responsible for its own acts and its own debts. Separate
legal status means that a corporation can conduct business
with the rights, duties, and responsibilities of a person.
Separate legal status also means that its owners, who
are called shareholders or stockholders, are not personally
liable for corporate acts and debts. This limited liability,
also stockholders may transfer all or part of their ownership
shares to other investors at any time, where capital of
corporation is divided into shares of equal value and
tradable (Transferable shares).
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2) Money Measurement Assumption
The money measurement assumption requires that
firms include in the accounting records only transactions
that can be expressed in money terms. This assumption
enables accounting to measure economic events, and this
assumption is vital to applying the cost principle. In other
words, events and transactions which cannot be expressed in
monetary terms are not recorded in accounting (firms record
only events that can be measured in money).
3) Going Concern Assumption
This assumption assumes that the business entity will
continue in operation long enough to carry out its existing
objectives, it will remain in operation in the expected future
unless it is to be liquidated soon.
4) Periodically Assumption
This assumption means that the economic life of
a business can be divided into equal periods of time, known
as "accounting period" (Quarterly- half yearly- annually) for
the purpose of preparing financial statements.
6- Accounting Principles:
Basic accounting principles are the general decision
rules which govern the development of accounting
techniques. These principles do not violate or conflict with
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the four basic assumptions discussed above but refines the
application thereof. The following are the basic accounting
principles: 1)
Historical Cost principle.
2)
Revenue Recognition principle.
3)
Matching Principle.
4)
Full Disclosure principle.
5)
Consistency principle.
6)
Objectivity principle.
1) Historical Cost Principle
The cost principle dictates that company’ record assets
at their cost, this is true not only at the time the asset is
purchased, but also over the time that asset is held. Cost is
used because it is both relevant and reliable, cost is relevant
because it represents the price paid, cost is reliable because
it is objectively measurable factual and verifiable, cost is the
basis used in preparing financial statements.
2) Revenue Recognition principle
This principle dictates that companies should recognize
revenue in the accounting period in which it is earned, or
revenues are recognized in period a product has been sold or
Service has been performed regardless of when the money
is received. In other words, when a sale is involved,
companies recognize revenue at the point. This sales basis
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involves an exchange transaction between the seller and
buyer. The sales price is an objective measure of the amount
of revenue realized. However, there are exceptions to the
sales basis for revenue recognition, such as: installment sale,
contracting companies, production of precious metals.
3) Matching Principle.
Matching principle requires that the expenses should
be matched with the revenues generated in the relevant
period, to determine net income during financial period.
This principle requires use the accrual basis of accounting,
where we do not recognize the expense when cash is paid or
when a product is produced. It is recognized when the
product or service. Contributes to the revenue. Therefore,
expenses are not related to the period of cash outflow but to
the period in which the revenues are generated. For
example, sales commission’s expense should be reported in
the period when the sales were made.
4) Full Disclosure principle
It means the necessity of disclosing all information or
events that are considered important and necessary for users
of information. This principle means that when preparing
the financial statements there must be complete publicity.
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5) Consistency principle
According to this principle, companies should apply
the same accounting methods from period to other, but if it
took a change in one of the accounting methods, companies
must disclose this change and its impact, and the reason for
the change.
6) Objectivity principle
This principle implies that the accounting information
should be verifiable and free from any bias.
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Questions of Chapter One
The Conceptual Framework of Accounting:
Q (1) What meant by:
Accounting – Proprietorship - Partnership - Corporation Money
Measurement
Assumption-
Accounting
Entity
Assumption – Going Concern Assumption - Periodically
Assumption - Historical Cost Principle – Matching Principle –
Consistency Principle – Objectivity Principle.
Q(2):Put (true) or (false)
1 -The historical cost principle indicates that companies record
assets at their cost. In later periods, however, the fair value of
the asset must be used if fair value is higher than its cost.
2 -Investors are internal users.
3 -Accounting entity assumption means that the business
entity will continue in operation long enough to carry out its
existing objectives.
4 -Proprietorship owned by two or more persons.
5 -Partnership: A business legally separate from its owners,
where capital is divided into shares of equal value and
transferable shares.
6 - Objectivity principle requires that the expenses should
be matched with the revenues to determine net income.
7- Consistency principle implies that the accounting
information should be verifiable and free from any bias.
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8- The accounting function ends with recording transactions
in the accounting books.
9- Bookkeeping is the communication of economic
operations and events to users of information.
10- The life of the business entity is divided into equal
periodic in application of the assumption of periodically.
11- Separation of the property and obligations of the
business entity from the property and obligations of its
owner is an application of the assumption of going concern.
12- Labor unions are among the internal parties that benefit
from accounting information.
13- Bookkeeping and accounting are the same.
Q (3): Choose the best answer.
1 -Which of the following is not a step in the accounting
process?
a) Identifying
c) Verificating
b) Recording
d) Communicating
2 -The economic life of a business can be divided into
equal periods of time.
a) accounting entity assumption
b) Money measurement assumption
c) Going concern assumption
d) Periodically assumption
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3 - the necessity of disclosing all information or events
that are considered important and necessary for users of
information.
a) Cost principal
c) full disclosure principle
b) Matching principal
d) Consistency principle
4 -Which of the following statements about users of
accounting information is incorrect?
a) Management is an internal user.
b) Labor unions are internal users
c)Taxing authorities are external users.
d)Prospective investors are external users.
5 -The cost principle means that:
a) Assets should be initially recorded at cost and adjusted
when the market value changes.
b) Only transaction data capable of being expressed in terms
of money is included in the accounting record.
c)Assets should be recorded at their cost.
d)Activities of an entity are to be kept separate and distinct
from its owner.
6- Any of the accounting principles that require
accounting information to be verifiable and free from
bias
a) Cost principal
b) Objectivity Principal
c) full disclosure principle
d) Consistency principle
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7- The assumption assumes that the business entity will
continue in operation long enough to carry out its
existing objectives.
a) accounting entity assumption
b) Money measurement assumption
c) Going concern assumption
d) Periodically assumption
8- When the business entity bought an asset for 60,000
pounds and its market value is 65,000 pounds, according
to the historical cost principle, the asset is recorded at an
amount.
a) 60000
b) 65000
c) 125000
d) 5000
Q (4): Complete each of the following sentences: 1-
…………... A part of accounting process that usually
involves only the recording of economic events.
2-
……………A business owned by many investors and
its capital is divided into shares.
3-
……………A principle that companies should apply
the same accounting methods from period to other.
4-
…………… A principle implies that the accounting
information should be verifiable and free from any bias.
5-
…………… A business owned by two or more
persons.
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Q (5): Give the Arabic terminology for the following.
Bookkeeping – creditors – corporation - proprietorship
– Revenue Recognition Principle – objectivity principle –
Accounting Entity assumption – financial Accounting.
Q (6): Give the English terminology for the following.
‫– القررئا‬
‫– شررفت ت اخش ر‬
‫المصررفا ت – اإليررفاتات – ص ر ا ال ر‬
‫– ق مر المفتر المر لا المي انير ) – ق مر الفر ق ت‬
‫ال ارير – مةر أ‬
‫الئحر الما هرةي – رف‬
‫بر إليفات – مةر أ‬
‫الشر م ) – مةر أ اترفررفا‬
‫– رف‬
‫الم لير – ق مر الر‬
‫النق ي – حملر اخهر‬
‫الثةر ت – مةر أ اإل صر ك ال مر‬
. ‫المئضئري‬
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Chapter 2: Financial Statements.
- Types of Financial Statements.
- Income Statement.
- Balance Sheet.
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Chapter Two
Financial Statements
Learning Objectives:
- Identify types of financial statements and explain the
contents of each of the four basic financial statements.
- Define income statement and describe its content.
- Define balance sheet and describe its content.
- Identify the accounting equation and its basic elements
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CHAPTER TWO
Financial Statements
Companies prepare four financial statements from the
summarized accounting data:
1) Income Statement: represent the revenues and
expenses and resulting net income or net loss for a
specific period.
2)
Balance Sheet: reports the assets, liabilities, and
owner's equity at a specific date.
3)
Owner's Equity Statement: Summarizes the changes
in owner's equity for specific period.
4)
Statement of Cash Flows: Summarizes information
about cash inflows (receipts) and the cash outflows
(payments) into three activities: operating activities,
investing activities, financing activities for a specific
period. Because we are dealing with accounting in
proprietorship, we will focus explanation and analysis
on the income statement and balance sheet only.
1- Income Statement
The main purpose of the preparation of the income
statement is to determine the result of the firm from profit or
loss during a certain period (usually a year) by comparing
revenues with expenses, where the reporting of profitability
involves two things: The amount that was earned (revenues)
and the expenses necessary to earn the revenues.
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The income statement lists revenues first, followed by
expenses; finally, the statement shows net income or net
loss.
Net income results when revenues exceed expenses, a
net loss occurs when expenses exceed revenues.
This statement is based on the simple formula, as
follows: Net Income (Net Loss) = Revenues – Expenses
•
Revenues: refers to inflows of an entity because of the
sale of goods or provide services, revenues are the gross
increases in owner’s equity: revenues usually result in
an increase in an asset, common sources of revenue are
sales or service.
•
Expenses: refers to outflows from an entity, expenses
are the cost of assets consumed or services used in the
process of earning revenues, they are decreases in
owner’s equity that result from operating the business,
types of expenses such as, rent, wages, salaries,
advertising, debit interest, depreciation.
There are two formats to prepare income statements, as
follows: 1) The First format based on determining net income
or net loss in one step (service companies), as
follows:
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Income Statement
Revenues
Services revenue or (Sales revenue)
100,000
-Expenses:
Rent expenses.
10,000
Salaries and wages expense
30,000
Advertising expense
20,000
Total Expenses
(60,000)
Net Income
40,000
2) The Second format based on determining net income on
multiple steps (commercial companies), as follows: Comprehensive Income Statement
Sales revenue
100,000
- sales returns & allowances
(3000)
- Discount Allowed
(2000)
Net sales
(5000)
95000
- Cost of goods sold:
Beginning Inventory
20,000
+ Cost of purchases
30,000
- Ending Inventory
(10,000)
Cost of goods sold
(40,000)
Gross Income
55,000
- Operating Expenses
(10,000)
Net Income
45,000
Based on the above, we can conclude the following: -
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1- Net sales = Sales revenue - sales returns & allowances Discount Allowed.
2 - Cost of goods Sold = Beginning inventory + Cost of
Purchase – Ending Inventory.
3 - Gross Income = Net sales – cost of goods sold.
4 - Net Income = gross Income – operating expenses.
2- Balance Sheet:
The main purpose of balance sheet or (statement of the
financial position) is to determine the financial position of
business entity. In other words, determine their rights and
property (assets), and obligations both owners of entity
(owner's equity), or outside the entity (liabilities).
We can express the relationship of assets, liabilities,
and owner's equity as an equation, as follows: Assets = Liabilities + Owner's Equity
This relationship is the basic accounting equation or
(balance sheet equation), Assets must equal the sum of
liabilities and owner's equity.
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
Assets
Assets are resources owned or controlled by the
company because of past events. These resources are
expected to yield future benefits. Assets can be classed as
fixed assets and current assets.
1)
Fixed Asset: divided into tangible assets and intangible
assets.
a)
Tangible Assets: represent the use of cash to purchase
physical assets whose life exceeds one year, that are
purchase for use in practicing the work of the
company, such as: Land, Building, equipment, cars,
furniture.
b)
Intangible Assets: represent the use of cash to
purchase assets with an undetermined life and they
may never mature into cash, such as: good will,
patents, and trademarks.
2)
Current Assets: are assets that quickly and easily can
be converted into cash, they are include, Cash,
Accounts receivable (A/R), Note's receivable (N/R),
Inventory, Marketable securities, prepaid expenses,
accrued revenues.

Liabilities: are obligations of the company, they are
amounts
owed
transactions.
to
others
(creditors)
for
past
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Liabilities can be classed (divided) as long-term
liabilities and short-term liabilities.
1)
Long Term Liabilities: are those liabilities which
need not be paid of immediately (exceed one year);
such as, long term loans, bonds.
2)
Short Term Liabilities: which are the liabilities that
need to be paid of immediately in the coming financial
year (obligations that will mature must be paid with in
(12) twelve months such as, Accounts payable (A/P)
Notes payable (N/P), short term Loans, Accrued
expenses (Expenses payable), prepaid (Unearned)
revenues.

Owner's Equity: is the amount of investment made by
owners, it is equal to assets minus liabilities; it is also
called net assets.
Owner's equity= Capital + Net income (Net loss) –
withdrawals.
(Or) owner's equity = Capital + revenues- expenses –
withdrawals.
There are two formats for balance sheet, as follows: 1) The first format based on preparing balance sheet in
two sides.
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Assets
Balance Sheet
Fixed Assets
Liabilities and owner's equity
Owner's Equity
Good will
xx
Capital
xx
Patents
xx
+ Net Income
xx
Lands
xx
- withdrawals
xx
Building
xx
Long Term Liabilities
Equipment
xx
Long term loans
xx
Cars
xx
Bonds
xx
Furniture
xx
Short Term Liabilities
Current Assets
Accounts Payable (A/P)
xx
Inventory
xx
Notes Payable (N/P)
xx
Accounts Receivable (A/R)
xx
Short term Loans
xx
Expenses payable
xx
Notes Receivable (N/R)
xx
(Accrued Expenses)
Marketable Securities
xx
Prepared revenue
Cash
xx
(Unearned revenue)
Prepaid expenses
xx
Accrued revenue
xx
XXX
xx
XXX
2) The second format based on preparing balance sheet
on Vertical report, as follows:
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Assets:
Goodwill
xx
Trademarks
xx
Patents
xx
Land
xx
Building
xx
Cars
xx
Inventory
xx
Accounts Receivable (A/R)
xx
Cash
xx
Total Assets
xxxx
Owner's Equity:
Capital
xx
+ Net Income
xx
- Withdrawals
(xx)
Total Owner's Equity
xxx
Liabilities:
Accounts Payable (A/P)
xx
Notes Payable (N/P)
xx
Loans
xx
Total Liabilities
xxxx
Total Owner's Equity and Liabilities
xxxx
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Example:
Presented below is selected information related to
(ABC) company on December 31, 2019. (ABC) reports
financial information monthly.
Land 80,000 - Sales Revenue 65,000 – Building 50,000 Accounts Payable 15,000 – Cash 10,000 – Inventory 5,000
– Rent expense 5,000 – Salaries expense 15,000 – Accounts
Receivable 20,000 – Withdrawals 5,000 – Capital 100,000 –
Advertising expense 10,000 – Loans 20,000.
Required:
1) Prepare Income Statement.
2) Prepare Balance Sheet.
Income Statement
December 31, 2019
Sales Revenue
65,000
- Expenses
Rent Expense
5,000
Salaries expense
15,000
Advertising expense
10,000
Total Expenses
Net Income
(30,000)
35,000
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Balance Sheet
December 31, 2019
Assets
Land
80,000
Building
50,000
Cash
10,000
Accounts Receivable (A/R)
20,000
Inventory
5,000
Total Assets
165,000
Owner's Equity
Capital
100,000
+ Net Income
35,000
- Withdrawals
(5,000)
Liabilities
Accounts Payable (A/P)
15,000
Loans
20,000
Total Owner's Equity and Liabilities
165,000
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Questions of Chapter Two
Financial Statements
Q (1) What meant by:
Income Statement – Balance Sheet – Revenues – Expenses
– Assets – Tangible Assets – Current Assets – Liabilities –
Owner's Equity.
Q(2) Put (true) or (false)
1 -Net Income is the different between Assets and
Liabilities.
2 -Net Assets is the different between Assets and Liabilities.
3 -Prepaid rent is example of expenses.
4 -Goodwill example of owner's equity.
5 -Accounts payable are example of revenue.
6 -Salaries payable example of Assets.
7 -Accrued revenue is example of revenues.
8 -Withdrawals increase owner's equity.
9- The financial statement that includes the assets, liabilities
and equity of the enterprise is called the statement of
owner’s equity.
10- The statement of cash flows includes information about
cash inflows and cash outflows from operating
activities, investing activities, and selling activities.
11- Beginning inventory of the period add when
calculating the cost of goods sold, while ending
inventory of the period deducts.
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12- While the allowed discount is deducted from the total
sales, the earned discount is added to the total purchases
in the income statement.
13- Beginning and ending inventory appear within the debit
balances of the same trial balance.
14- The first financial statement that is usually prepared is
the balance sheet.
15- Capital is example of assets.
16- Withdrawals are recorded by the owner of business in
the income statement.
17- Assets are always tangible.
18- patents is an example of intangible asset.
19- Goodwill example of owner’s equity.
20- Accounts receivable example of current assets.
Q (3) Choose the best answer:
1 -Net Income will result during a period when:
a) Expenses exceed revenues.
b) Assets exceed liabilities.
c) Revenues exceed expenses.
d) Assets exceed revenues.
2 -Which of the following items are liabilities?
a) Goodwill
b) Accounts Payable
c) Prepaid Wages
d) Notes Receivable
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3 -As of December 31, 2012, (ABC) company has assets of
4,000 and owner's equity of 3,000. What are the liabilities
for (ABC) company as of December 31, 2012?
a) 1,000
b) 7,000
c) 2,500
d) 3,000
4 -The financial statement that reports assets, Liabilities
and owner's equity is the:
a) owner's equity statement.
c) Income statement.
b) Balance sheet.
d) Statement of cash flows
5 -Which of the following statement is false?
a) A balance sheet reports the assets, liabilities, and owner's
equity at a specific period.
b) An owner's equity statement summarizes the changes in
owner's equity for a specific period.
c)An income statement presents the revenues, expenses,
changes in owner's equity, and resulting net income or net
loss for a specific period.
d) A statement of cash flows Summarizes information about
cash inflows (receipts) and the cash outflows (payments) for
a specific period.
6- Which of the following items are fixed assets?
a) Notes Receivable
b) Cash
c) Land
d) Capital
7- ……… = gross profit - operating expenses
a) net sales
b) net income
c) cost of goods sold
d) cost of purchases
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Q (4) for each of the following situation computes
the missing amount:
1-Assets
95,000
liabilities
35,000,
owner's
equity
=…………….
2 -Cost of goods sold 50,000, Beginning Inventory 6,000,
Ending inventory 8,000, cost of purchases =………………
3-
Capital 100,000, Revenues 75,000, Expenses 55,000,
withdrawals 2,000, Net Income = ………, owner's equity =
……………...
4-
Net Sales 200,000, cost of goods sold 50,000,
operating expenses 10,000, gross Income = -------Net
Income = ………………….
5 - Liabilities 50,000, owner's equity 150,000, Assets =
............
Q (5) Complete each of the following sentences:
1 -…………. refers to inflows of an entity because of the
sale of goods or provide services.
2 -……………are resources owned or controlled by the
company because of past events and expected to yield future
benefits.
3 - Fixed assets divided into………. and………….
4 -…………. are assets that quickly and easily can be
converted into cash.
5 -…………. obligations of the company arising from past events.
6 -…………. the mount of investment made by owners.
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7 - Owner's equity = capital + Net income -……………
8 -Net income = gross income - …………….
9 - Cost of goods sold = Beginning inventory + ………… Ending inventory.
10- Gross Income = Net sales - ………………
11-The accounting equation states that ………… =
…………. + ……………
Q (6) Give the Arabic Terminology for the following:
Income Statement- Balance Sheet – Owner's Equity
Statement – Statement of Cash Flows – Revenues –
Expenses – Assets – Liabilities – Owner's Equity –
Withdrawals – Accounts Payable – Notes Receivable.
Q (7) Give the English Terminology for the following:
‫– ت لف الةضر ر المة رر‬
‫إيفات المةيع ت – اخجئر االمفتة ت – ص ا ال‬
– ‫ أصرئل ث بفر‬- ‫– مصرفا ت الفشرلي‬
‫– م ان أال الم – مجمر الر‬
‫أصئل ملمئه – أصئل غيرف ملمئهر – أصرئل مف االر – الف امر ت طئيلر‬
– ‫اخج – مصفا ت مق مر – إيرفاتات مترفاق – قرفا – شر ف المار‬
– ‫بررفا ات فررفا – رأس المرر ل – مصررفا ت متررفاق – إيررفاتات مق مرر‬
. ‫م ينئن – أاراق ت ع – أاراق م لي‬
Q (8) Presented below is selected information related to
golden company on December 31, 2012. Golden reports
financial information every three months.
Building
70,000 Accounts payable
5,000
Services Revenue
90,000 Wages Expense
3,000
Advertising
2,000 Withdrawals
4,000
Expense
Capital
80,000 Prepaid insurance
1,000
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Equipment
60,000 Cash
30,000
Notes Receivable
15,000 Inventory
10,000
Loans
20,000 Interest expense
Rent Payable
Required:
1) Prepare Income Statement.
2) Prepare Balance Sheet.
2,000
2,000
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Chapter 3: The Basic Accounting Equation.
- Form of Accounting Equation.
- Analysis of Transactions and Their Impact
on the Accounting Equation.
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Chapter Three
The Basic Accounting Equation
Learning Objectives:
-Determine the components of the accounting equation.
- Analysis of transactions, and their impact on the accounting
equation.
- Determine the effect of transactions on income statement
and balance sheet.
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CHAPTER Three
The Basic Accounting Equation
The two basic elements of a business are what is owns
and what it owes. Assets are the property or resources a
business owns, such as (goodwill, patents, trademarks,
Land, Building, Machinery and Equipment, cars, furniture,
cash, inventory, Accounts Receivable, Notes Receivable, prepaid
expenses, accrued revenues).
Liabilities and owner's equity are the obligations or rights
or claims against these resources, claims of those to whom
the company owes money (creditors) are called liabilities
(owes to other outside company), such as (Accounts
payable, notes payable, loans, accrued expenses, prepaid
revenues).
Claims of owner's are called owners’ equity (owes to
owner's equity) such as, capital, which increased revenues
and decreased expenses and withdrawals.
We can express the relationship of assets, Liabilities,
and owner's equity as an equation, (Accounting Equation),
as follows: Assets = Liabilities + Owner's Equity
Or
Assets = Liabilities + Capital + Revenues - Expenses Withdrawals.
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Note:
1) Withdrawals: An owner may withdraw cash or other
assets for personal use, which decrease owner's equity
and Assets.
2) Any transactions or economic events undertaken by the
company make the accounting equation in case of equal
or balance (The sum of assets equals the sum of liabilities
and owner's equity, where transactions or economic
events may be external or internal.
External events or transactions involve economic events
between the company and some outside parties. For
example, purchase equipment from suppliers, payment
advertising expense to announcement agents, and sale goods
to customers are external transactions.
Internal transactions are economic events that occur
entirely within one company. For example, payment wages
and salaries, the use of equipment to achieve the company's
goals.
Each transaction must have a dual effect on the
accounting equation. For example, if an asset is increased,
there must be a corresponding.
(1) Decrease in another asset, or (and) (2) increase in a
specific liability, or (3) increase in owner's equity.
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
Analysis of transactions, and their impact on the
accounting equation:
The following examples are business transactions for a
service company during its month of operation.
Transaction (1): Investment by owner, on January 1,
2013, Lotus company invests 100,000 cash in the business,
after this transaction, the cash (an asset) increase by
100,000, and the capital (owner's equity) increase by
100,000. In other words, this transaction results in an equal
increase in assets and owner's equity.
Assets
Liabilities
=
+
cash
(1) +100,000
100,000
Owner's equity
Capital
+
100,000
=
100,000
Transaction (2): Purchase of Equipment on credit, on Jan
5, Lotus purchases for 40,000 equipment from golden
company on credit (on account). This purchase increase
equipment (an asset) by 40,000, and accounts payable
(Liabilities, increase by the same amount.
Owner's equity
Assets
Liabilities
Capital
Cash +Equipment = Accounts payable +
100,000
100,000
+ 40,000
(2)
100,000
+ 40,000
140,000
+ 40,000
=
40,000
+
140,000
100,000
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Transaction (3): Obtain a Loan, on Jan 8; Lotus got a
Loan for 30,000 cash. This transaction increase cash
(an asset) by 30,000 and Loan (Liabilities) by the same
amount.
Assets
= Liabilities
+ Owner's equity
Cash + Equipment = Accounts + Loans + Capital
Payable
+ 40,000
+ 40,000
100,000
100,000
(3) +30,000
130,000
+ 30,000
+ 40,000
=
40,000 + 30,000 + 100,000
170,000
170,000
Transaction (4): Purchase of furniture for cash, on Jan 14,
Lotus Purchase furniture for 10,000 cash. This transaction
results in an equal increase and decrease in total assets, cash
decrease (an asset) by 10,000, and the furniture (an assets)
increase by the same amount
cash
Owner's equity
= Liabilities +
Assets
Accounts
+ Loans + Capital
+Equipment + furniture = payable
130,000 + 40,000
(4)-10,000
= 40,000 + 30,000 +100,000
+ 10,000
120,000 +40,000+10,000 = 40,000 + 30,000 + 100,000
170,000
170,000
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Transaction (5): provide services for cash, on Jan 17, Lotus
receives 20,000 cash from customers for Provide services,
this transaction increase cash (an asset) by 20,000 and
increase revenues (increase owner's equity) by the same
amount.
= Liabilities +
Assets
cash Equipment + furniture
+
Accounts
payable
=
Owner's equity
+ Loans + Capital + Revenue
120,000 + 40,000 +10.000 = 40,000 + 30,000 +100,000
(5) +20,000
+ 20,000
140,000 +40,000+10.000 = 40,000 + 30,000 + 100,000 + 20,000
190,000
190,000
Transaction (6): Sales furniture for cash and credit, on Jan
20, Lotus Sold part of the furniture for 8,000, received 4,000
in cash and the rest on the account. This transaction decrease
furniture (an asset) by 8,000, increase cash (an asset) by 4,000
and increase accounts receivable (an asset) by 4,000.
Assets
Cash
Equipment
140.000
+
40.000
+
40,000
+
Accountds
Receivable
10.000
+
- 8.000
+
4.000
2,000
+
4,000
+
(6) + 4.000
144,000
Furniture
+
+
= Liabilities + owner's equity
+
190,000
=
Accountds
payable
=
=
40.000
40,000
+
+
Loans
+
30.000
+
+
30,000
+
+
Revenues
100.000
+
20.000
100,000
+
20,000
Capital
190,000
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Transaction (7): Payment of Expense in cash, on Jan 22,
Lotus pays 5,000 wages in cash, this transaction decrease
cash (an assets) by 5,000 and decrease owner's equity (by
expense) by the same amount.
Assets
Cash
Equipment
+
+
144.000
+
40.000
= Liabilities + owner's equity
Furniture
2.000
+
+
Accountds
+
4.000
Receivable
=
Accountds
payable
=
40.000
+
+
Loans
+
30.000
Capital
+
+
100.000
+
Revenues
-
Expenses
(Wages)
20.000
(7)-5.000
- 5.000
139,000
+
40,000
2,000
+
+
4,000
= 40,000
30,000 100,000 20,000
=
+
+
+
185,000
- 5.000
185,000
Transaction (8): Payment of Accounts payable, on Jan 25,
Lotus pays 15,000 to golden company cash, this transaction
decrease cash (an assets) by 15,000 and decrease Accounts
payable (Liabilities) by the same amount.
Assets
Cash
Equipment
+
+
139.000
+
40.000
= Liabilities + owner's equity
Furniture
+
2.000
+
Accountds
+
4.000
Receivable
(8)-15.000
124,000
=
Accountds
payable
Loans
+
30.000
Capital
+
+
100.000
+
Revenues
-
Expenses
(Wages)
20.000
- 5.000
= 25,000
30,000 100,000 20,000
=
+
+
+
- 5.000
=
40.000
+
+
- 15.000
+
40,000
+
2,000
+
4,000
170,000
Transaction
170,000
(9):
Receipt
of
cash
from
Accounts
Receivable, Lotus received 2,000 in cash from customers
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the remaining part of the furniture of the sale price. This
transaction increase cash (an asset) by 2,000 and decrease
Accounts receivable (an asset) by the same amount.
Assets
Cash
Equipment
+
+
124.000
+
40.000
+
Furniture
2.000
= Liabilities + owner's equity
+
Accountds
+
4.000
(9)+ 2.000
126,000
Receivable
- 2.000
+
40,000
+
170,000
2,000
+
2,000
=
Accountds
payable
=
25.000
+
+
+
Loans
+
30.000
+
100.000
+
20.000
- 5.000
+
30,000
+
100,000
+
20,000
- 5.000
Capital
Revenues
-
Expenses
(Wages)
=
25,000
170,000
Transaction (10): withdrawals of cash by owner: The owner
of Lotus Company withdraws 6,000 in cash from the
business (The Company) for his personal use. This
transaction results in an equal decrease in cash (an asset) by
6,000 and owner's equity (by withdrawals) by the same
amount.
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Assets
Cash
Equipment
Furniture
+
+
+
126.000
40.000
= Liabilities + owner's equity
+
2.000
+
Accountds
+
2.000
Receivable
=
Accountds
payable
25.000
=
+
+
Loans
+
30.000
Capital
+
+
100.000
+
Revenues
20.000
-
Expenses
withdrawals
(Wages)
- 5.000
(10)- 6.000
120,000
-
- 6.000
+
40,000
+
2,000
+
2,000
25,000
+
30,000
+
100,000
164,000
+
20,000
- 5.000
- 6.000
164,000
 Summary of Transactions:
We summarize in the following table the cumulative effect
of the previous ten transactions on the accounting equation,
where we see that the accounting equation remains in
balance after each transaction.
Assets
Cash
+
=
EQU + Fur
Liabilities + owner's equity
+ A/R = A/P + Loans + Capital + Rev – Ex - withdrawals
(1) + 100,000
(2)
+100,000
+40,000
+40,000
(3) + 30,000
+30,000
(4) - 10,000
+10,000
(5) + 20,000
+20,000
(6) + 4,000
- 8,000
+ 4,000
(7) - 5,000
- 5,000
(8) - 15,000
-15,000
(9) + 2,000
- 2,000
(10)- 6,000
120,000
- 6,000
+40,000
+ 2,000
164,000
+ 2,000
= +25,000
=
+30,000
+100,000
+20,000
164,000
- 5,000
- 6,000
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Income Statement
Revenues
Services revenue
20,000
-Expenses:
Wage's expense
(5,000)
Net Income
15,000
Balance Sheet
Assets
Equipment
40,000
Furniture
2,000
Accounts Receivable
2,000
Cash
120,000
Total Assets
164,000
Owner's Equity
Capital
100,000
+ Net Income
15,000
- Withdrawals
(6,000)
Liabilities
Accounts Payable (A/P)
25,000
Loans
30,000
Total Owner's Equity and Liabilities
164,000
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Questions of chapter three
The Basic Accounting Equation
Q(1) Put (true) or (false):
1- Assets = liabilities – owners’ equity.
2- Assets = Liabilities + Capital + Revenues - Expenses +
Withdrawals.
3- The terms assets and net assets are the same.
4- It is required that the financial position is always in a
state of balance after every financial transaction
carried out by the business entity.
5- The purchase of an asset on the account leads to an
increase in it and an increase in owners’ equity by the
same amount to maintain the balance of the accounting
equation.
6- Paying rent in cash results in a decrease in assets and a
decrease in owners’ equity in the same amount.
7- Providing services to customers on the account, which
results in an increase in assets and an increase in
liabilities by the same amount.
8- Selling an asset on the account results in a decrease in
assets and an increase in liabilities by the same amount.
9- When the business owner withdraws a cash amount from
the business to pay expenses for the business, the amount
recorded as withdrawals from the business owner.
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Q. (2) Choose the best answer:
1 - Performing services on account will have the
following effects on the components of the basic
accounting equation:
a) Increase assets and increase owner's equity.
b) Increase assets and decrease owner's equity.
c) Increase assets and increase liabilities.
d) Increase liabilities and increase owner's equity.
2 -Payment of an account payable affects the
components of the accounting equation in the following
way.
a) Increase owner's equity and decreases liabilities.
b) Increase assets and decreases liabilities.
c) Decreases assets and decreases liabilities.
d) Decreases assets and increase owner's equity.
3 -Taking a loan affects the components of the
accounting equation in the following way.
a) Increase Liabilities and increases owner's equity.
b) Increase assets and increases liabilities.
c) Decreases assets and decreases liabilities.
d) Decreases assets and increase owner's equity.
4 -Purchase Building on account affects the components
of the accounting equation in the following way.
a) Increase assets and increases liabilities.
b) Increase assets and decreases liabilities.
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c) Increases liabilities and increases owner's equity.
d) Decreases assets and increase liabilities.
5 -The expanded accounting equation is:
a) Assets + Liabilities = owner's capital + owner's drawings
+ Revenues + Expenses.
b) Assets = liabilities + owner's capital + owner's drawings
+ Revenues – Expenses.
c) Assets = liabilities + owner's capital – owner's drawings +
Revenue - Expenses
d) Assets = liabilities - owner's capital – Revenue +
Expenses + owner's drawings.
6 - Selling furniture for cash affects the component of
the accounting equation in the following way.
a) Increases liabilities and decreases owner's equity.
b) Increase liabilities and decreases another liability.
c) Increases Assets and decreases another asset.
d) Decreases assets and increases liabilities.
7 - Repayment of the loan company affects the
component of the accounting equation in the following
way.
a) Increases assets and increases liabilities.
b) Decreases assets and decreases liabilities.
c) Increases assets and increases owner's equity.
d) Decreases liabilities and decreases owner's equity.
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Q (3): Legal services company, was incorporated on
March 1, 2013, during the first month of operations, the
following transactions occurred:
1 - Owner invested 50,000 in cash:
2 - Paid 1,000 for March rent on office space.
3 - Purchased office equipment on account 2,000.
4 - Provided Legal services to clients for cash 3,000.
5 - Borrowed 5,000 cash from a bank on a note payable.
6 - Performed legal services for client on account 1,500.
7 - Paid monthly expenses wages 3,500, utilities 1,000, and
telephone 5, 00.
8 - Owner withdraws 3,000 cash for Personal use.
Required:
1) Prepare a tabular summary of the transactions.
2) Prepare the income statement and balance sheet on
March 31, 2013, for legal services company.
Q. (4) Mohamed started a service business, the following
events occurred during its first month of business.
1 - On January 1, 2012, Mohamed invested 70,000 cash and
30,000 of equipment.
2 - On Jan 6, Mohamed purchased furniture 5,000 cash for
the shop.
3 - On Jan 10, Mohamed Paid 1,500 cash to rent space in a
star mall for Jan.
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4 - On Jan 15, he purchased 10,000 of equipment on
Account for the shop.
5 - On Jan 18, provide services 5,000 for cash.
6 - On Jan 20, sold part of the furniture for 2,000 received
1,500 in cash and the rest on the account.
7 - On Jan 25, he provided 3,000 of services on account.
8 - On Jan 27, paid 4,000 salaries in cash.
9 - On Jan 28, paid 2,000 in cash to pay a portion of the
equipment due from him.
10- Mohamed withdraws 2,000 cash for personal use.
Required:
1) Prepare a tabular summary of the transactions.
2) Prepare the income statement, and Balance sheet.
Q. (5) Presented below is the basic accounting equation,
Determine the missing amounts.
Assets
a)
100,000
b)
?
c)
70,000
=
Liabilities + owner's equity
=
=
40,000 +
60,000 +
=
?
80,000
?
+
30,000
Q. (6) Indicate whether each of the following items is an
asset (A), Liability (L), or part of owner's equity (OE)
………. a) Notes receivable ……. d) Accounts payable
………. b) Capital
……. e) Prepaid rent
……….c) Land
……. f) Prepaid revenue
Q. (7) Indicate how the following business transactions
affect the basic accounting equation:
a) Purchased equipment on account.
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b) Paid accounts payable in full.
c) Invested cash in the business.
d) Owner withdraws cash for personal use.
e) Obtain a loan.
f) Provide services for cash
g) Payment of expenses.
Q (8): An analysis of the transactions made by business of Ahmed,
a certified public accounting firm, for the month of October is
shown below.
Cash
(1)
+ EQU + Fur +
A/R
= A/P + Loans + Capital + Rev –
+
+ 50,000
Ex
-
Withdrawals
(rent)
50,000
(2)
-
20,000
+15,000
5,000
(3)
-
+15,000
15,000
(4)
+
+20,000
+30,000
10,000
(5)
-
-10,000
10,000
(6)
-
- 6,000
6,000
(7)
-
- 2,000
2,000
(8)
+
- 10,000
10,000
Required:
1) Describe each transaction that occurred for the month.
2) Prepare Income Statement and Balance Sheet.
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Chapter 4: Accounting Cycle.
- Steps of Accounting Cycle.
- Steps to do Journal Entry.
- Record Transactions in a Journal.
- Post from the Journal to the Ledger.
- Ledger Format.
- Prepare a Trial Balance.
- Trial Balance Format.
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Chapter Four
Accounting Cycle
Learning Objectives:
- Determine the steps of the accounting cycle.
- Determine the nature of accounts balances.
- Define the double- entry system of accounting.
- Define the journal.
- Learn about the journal form.
- Describe a journal and its relationship to the ledger.
- Prepare journal- entries to record business transactions.
- Describe posting from the journal to the ledger.
- Definition of trial balance.
- Prepare a trial balance and discuss its uses and limitations.
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CHAPTER FOUR
Accounting Cycle
In the previous chapter, we analyzed business,
transactions in terms of the accounting equation, and we
presented the cumulative effects of these transactions in
tabular form, but in a single day the company may engages
in thousands of business transactions. To record each
transaction this way would be impractical, expensive, and
unnecessary. Instead, companies use a set of steps or
procedures and records to keep track of transaction data
more easily. This chapter introduces and illustrates these
basic steps or procedures and records, through display or
explaining the accounting cycle.

The Accounting cycle: -
1 - Analyze transactions from source documents.
2 - Record transactions in a journal according to the rule
of double – entry.
3 - Post from the journal to the ledger.
4 - Prepare a trial balance from the ledger.
We can be explained the previous steps as follows:
Analyze transactions means decide debits and credits
and in which accounts they will be entered, the simplest
journal form is a chronological listing of transactions and
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events expressed in terms of debit and credit to accounts,
where an account is an individual accounting record of
increases and decreases in a specific asset, liabilities,
owner's equity, revenues, expenses.
An account consists of three parts: a title, a left or debit
side, and a right or credit side. The items entered in a
journal must be transferred (posted) to the ledger. An
unadjusted trial balance should be prepared at the end of a
given period after the entries have been recorded in the
journal and posted to the ledger.
(1) Record transaction in a Journal:
Steps to identify the debit side and the credit side in
preparation (beginning) of the recording transactions in a
Journal:

Elements of financial position according to accounting
equation:
Assets
Liabilities
Owner's
Revenues
Expenses
Equity
Assets = Liabilities + Owner's Equity (capital) + Revenues – Expenses
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Liabilities
owner's Equity
Revenues
Assets
Expenses
Debit balance
 Increase recorded in debit side.
 Decrease recorded in credit
side.
Credit balance
 Increase recorded in credit side.
 Decrease recorded in debit
side.
Notes: The term debit indicates the left side of an account, and the
term credit indicates the right side of an account.
Dr
Assets
Cr
Debit
Credit
Dr
Dr
Liabilities
Cr
Debit
Credit
For
For
For
For
increase
decrease
decrease
increase
Normal
Normal
balance
balance
Expenses
Cr
Debit
Credit
Dr
Revenues
Cr
Debit
Credit
For
For
For
For
increase
decrease
decrease
increase
Normal
Normal
balance
balance
Dr Owner's Equity Cr
(Capital)
Debit
Credit
For
For
decrease
increase
Normal
balance
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 Steps to do journal entry:
1- Determine the impact of the transaction on the elements of
the financial position of the company (Assets, Liabilities,
Owners Equity, Expenses, and Revenues).
2 - Determine the nature of impact (increase or decrease on the
+↑
-
elements)
3 - Determine the amount.
4 - Expression of increase and decrease to debit side and credit
side and application of the rule of double entry.
Note: Double-entry rule means: Any financial transaction
undertaken by the company have two sides, debit side and
credit side, the debit side must be equal to the credit side.
When we write journal entry, we must start first debit side
then credit side.
 Example (1):
1 - On October 1, 2013, Ali began his business with a
capital of 60,000 cash
Owners
Equity
+
60,000
Credit side
Asset
+
60,000
Debit side
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Cash
60,000
Capital 60,000
2 - On October 6, 2013, Purchase of furniture for
15,000 cash
Asset
+
15,000
Debit side
Asset
15,000
Credit side
Furniture 15,000
Cash 15,000
3 - On October 9, Purchase equipment for 30,000 from
future company on account
Asset
+
30,000
Debit side
Accounts
payable
(Liabilities)
+
30,000
Credit side
Equipment
30,000
Future company 30,000
(Accounts payable)
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4 - On Oct 13 provide services for 40,000 to
Revenue (+) 40,000 credit side
Customers, receive 25,000 cash and the rest on
account.
(Asset)
+
25,000
Accounts
Receivable
(Asset)
+
Debit side
15,000
Debit side
Cash
25,000
Accounts receivable (A/R) 15,000
Services Revenue

40,000
The Journal:
Means a chronological record of individual
business transaction.
The journal is referred to as the book of original
entry for each transaction, the journal shows the
debit and credit effects on specific accounts. The
journal has spaces for dates, account title, and two
amount columns of debit and credit.
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
Journalizing:
Means recording of transactions in a Journal
Companies make separate journal entries for each
transaction. A complete entry consists of
1 - The date of the transaction.
2 - The accounts and amounts to be debited and
credited.
3 - A brief explanation of the transaction.
The next figure shows the Journal format and the
technique of journalizing, using the example (1):
Journal
Date
Account Title
Debit
Credit
2013
Oct. 1
Cash
60,000
Owner's Capital
60,000
(Owner's investment of Cash)
Oct. 6
Furniture
15,000
Cash
(Purchase of furniture of Cash)
15,000
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Oct. 9
Equipment
30,000
Future Company (A/P)
30,000
(Purchase of equipment on account)
Oct. 13
Cash
25,000
Accounts Receivable (A/R)
15,000
Services Revenue
40,000
(Provide services receipt of
the Part and the rest on
account)
1)
The date of the transaction is entered in the date
Column.
2)
The debit account title is entered first at the
extreme left margin of the column headed
“Account title” and the amount of the debit is
recorded in the debit column.
3)
The credit account title is entered on the next line
in the column headed "Account title" and the
amount of the credit is recorded in the credit
column.
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4)
A brief explanation of the transaction appears on
the line below the credit account title, A space is
left between journal entries.
(2) Post from the Journal to the ledger "T" Accounts:
The ledger keeps in one place all the information
about changes in specific account balances, where the
ledger contains a separate account for each Asset,
Liability, and element of owner's equity.
The ledger is also called "T" account because it
looks like a capital T, use this form of an account to
help you determine whether the amount is place on the
left (debit) or right (credit) side of the accounts, each
account will have: (1) a title of account, (2) debit means
left side, and (3) credit means right side, as follows: Dr
Title of Account
Left or debit side
Cr
Right or credit side
The Ledger provides the balance in each of the
accounts, for example, the cash accounts show the amount
of cash available to meet current obligations, The Accounts
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Receivable account shows amounts due from customers,
Accounts payable shows amounts owed to creditors.

Ledger Model:
There are two formats for ledger accounts:
1 - "T" account format (Traditional format)
Title Account
Debit
Account
Account
Credit
After preparing ledger accounts, compute balances
of these accounts.
2 - New account formats
Title Account
Date
Explanation
Debit
Credit
Balance
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This format is called the "three-column form of
account", it has three money columns-debits, credit, and
balance. The balance in the account is determined after each
transaction.

Posting:
Transferring journal entries from journal to the ledger
accounts is called "posting". This step of accounting cycle
accumulates the effects of Journalized transactions into the
individual accounts.
The next figures show the ledger format, and the
techniques of posting, using the example (1).
Dr.
Cash
Cr
60,000 Capital
15,000 Furniture
25,000 Services Revenue
70,000 Balance
85,000
85,000
70,000 Debit Balance
Dr.
Capital
Cr
60,000 Balance
60,000 Cash
60,000
60,000
60,000 Credit Balance
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Dr.
Furniture
15,000 Cash
15,000 Balance
15,000
15,000
Cr
15,000 Debit Balance
Dr.
30,000
Equipment
Future company
Cr
30,000 Balance
(A/P)
30,000
30,000
30,000 Debit Balance
Dr.
Future company
Cr
30,000 Balance
30,000 Equipment
30,000
30,000
30,000 Credit Balance
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Dr.
Accounts Receivable
Cr
15,000 Services Revenue
15,000 Balance
15,000
15,000
15,000 Debit Balance
Dr.
Services Revenue
40,000
Balance
Cr
25,000 Cash
15,000 Accounts
Receivable
(A/R)
40,000
40,000
40,000 Credit Balance
(3) Prepare a Trial Balance:
A trial balance is a list and total of all the debit and
credit accounts for any entity for a given period. The
format of the trial balance is a two-column schedule
with all the debit balances listed in one column and all
the credit balances listed in the other. The trail balance
is prepared after all the transactions for the period have
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been journalized and posted to the ledger, and a trial
balance is useful in the preparation of financial. The
steps for preparing a trial balance are: 1 - List the account titles and their balances in the
appropriate debit or credit column.
2 - Total the debit and credit columns.
3 - Prove the equality of the two columns.

Trail Balance Model:
Balance
Account Name
Debit
Credit
xxxx
xxxx
Note: The trial balance proves the mathematical equality of
debits and credits after posting, but a trial balance does not
guarantee freedom from recording errors, Numerous errors
may exist even though the trail balance columns agree. For
example, the trial balance may balance even when:
1 - Transaction is not journalized.
2 - A correct journal entry is not posted
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3 - A journal entry is posted twice.
4 - Incorrect accounts are used in journalizing or posting.
5 - Offsetting errors are made in recording the amount of a
transaction. If equal debits and credits are posted even
to the wrong account or in the wrong amount that the
total debits will equal the total credits.
The trial balance does not prove that the company has recorded
all transactions of that the ledger is correct.
The next figure shows the trial balance format using
the example (1).
Trial Balance
Balance
Account
Debit
Cash
Credit
70,000
Capital
60,000
Furniture
15,000
Equipment
30,000
Future Company (A/P)
Accounts Receivable (A/R)
30,000
15,000
Services Revenue
Total
40,000
130,000
130,000
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Example (2): On July 1, 2010, Mohamed opened
commercial firm. The following transactions were
completed during the Month.
1 - He invested 500,000 consists of land for 150,000,
Equipment for 100,000, Building for 120,000, and the
rest in cash.
2 - On July 3, he bought goods for 50,000 from golden
company on account.
3 - On July 5, he bought car for 100,000 from international
company, paid 30,000 cash, and the rest on account.
4 - On July 8, he Sold goods for 20,000 to united company
on account.
5 - On July 13, Paid 6,000 cash for July wages.
6 - On July 20, Paid 10,000 due to golden company.
7 - On July 25, received 15,000 cash from united
company.
8 - On July 27, Mohamed withdraws 5,000 in cash from
the firm for his personal use.
Required:
1-
Journalize the previous transactions in the Journal of Mohamed
firm.
2-
Post the entries to related accounts in the Ledger.
3-
Prepare the Trial Balance.
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Journal
Date
Account Title
Debit
2010
Land
150,000
July 1
Equipment
100,000
Building
120,000
Cash
130,000
Capital
July 3
Purchases
500,000
50,000
Golden company (A/p)
July 5
Cars
50,000
100,000
Cash
30,000
International company (A/p)
July 8
United company (A/R)
70,000
20,000
Sales
July 13
Wages expense
20,000
6,000
Cash
July 20
Golden company (A/P)
6,000
10,000
Cash
July 25
Credit
Cash
10,000
15,000
United company (A/R)
15,000
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July 27
Withdrawals
5,000
Cash
5,000
Ledger Accounts:
Dr.
Land
Cr
150,000 Capital
150,000 Balance
150,000
150,000
150,000 Balance
Dr.
Equipment
Cr
100,000 Capital
100,000 Balance
100,000
100,000
100,000 Balance
Dr.
120,000
Building
Capital
120,000
120,000 Balance
Cr
120,000 Balance
120,000
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Dr.
Cash
Cr
130,000 Capital
30,000 Cars
15,000 United (A/R)
6,000 Wages
10,000 Golden (A/P)
5,000 Withdrawals
94,000 Balance
145,000
145,000
94,000 Balance
Dr.
500,000
Capital
Balance
500,000
Cr
150,000
Land
100,000
Equipment
120,000
Building
130,000
Cash
500,000
500,000
Dr.
50,000
Purchases
Golden (A/P)
50,000
50,000 Balance
Balance
Cr
50,000
50,000
Balance
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Dr.
Golden Company (A/P)
10,000 cash
Cr.
50,000 Purchases
40,000 Balance
50,000
50,000
40,000 Balance
Dr.
Cars
30,000 Cash
Cr
100,000 Balance
70,000 International (A/P)
100,000
100,000
100,000 Balance
Dr.
70,000
70,000
International Company (A/P)
Balance
70,000 Cars
70,000
70,000 Balance
Cr.
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Dr.
United Company (A/R)
20,000 Sales
Cr
15,000 Cash
5,000 Balance
20,000
20,000
5,000 Balance
Dr.
Sales
Cr
20,000 Balance
20,000 United (A/R)
20,000
20,000
20,000 Balance
Dr.
Wages Expense
Cr
6,000 Cash
6,000 Balance
6,000
6,000
6,000 Balance
Dr.
Withdrawals
5,000
Cash
5,000
5,000 Balance
Cr
5,000 Balance
5,000
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Prepare Trial Balance:
Trial Balance
Balance
Account
Debit
Land
150,000
Equipment
100,000
Building
120,000
Cash
94,000
Capital
Purchases
500,000
50,000
Golden Company (A/P)
Cars
40,000
100,000
International Company (A/P)
United Company (A/R)
70,000
5,000
Sales
20,000
Wages expense
6,000
Withdrawals
5,000
Total
Credit
630,000
630,000
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Questions of Chapter four:
Accounting Cycle
Q (1): What meant by:
The Journal, Journalizing, the Ledger, Posting, Trial
Balance, Double – Entry rule.
Q (2): Choose the best answer:
1 - The ledger contains a separate account for each: a) Business day.
b) Business transaction.
c) Journal Entry.
d) Asset, liabilities, and element of owners’ equity.
2 - A journal means:
a) A listing of the balances of the accounts in the ledger.
b) A separate account for each asset, liability, and element
of owner's equity.
c) A chronological record for individual business
transactions.
d) A transferring journal entry to the ledger.
3 - purchase equipment on credit: a) Increase both assets and liabilities.
b) Increase assets and decrease liabilities.
c) Decrease both assets and liabilities.
d) Decrease assets and increase liabilities.
4 - A revenue account: a) Increased by credits.
b) Has a normal balance of a debit.
c) Decrease by credits
d) Increased by debits.
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5 -Accounts that normally have debit balance are: a) Assets, expenses, and revenues.
b) Assets, liabilities, and owner's drawings.
c) Assets, expenses, and owner's capital.
d) Assets, expenses, and owner's drawings.
6 - Ahmed acquired Equipment by paying 20,000 cash
and signing a note payable for 80,000. To record this
purchase, Ahmed should: a) Debit Equipment 20,000, credit cash 20,000
b) Debit cash 20,000, debit Notes payable 80,000.
c) Debit Notes payable 80,000, credit cash 20,000, credit
Equipment 60,000.
d) Debit Equipment 100,000, credit cash 20,000, credit
Notes payable 80,000.
7 - Sale furniture on account should result in: a) A credit to furniture and a debit to Accounts Receivable.
b) A credit to furniture and a debit to cash.
c) A debit to furniture and a credit to account Receivable.
d) A debit to furniture and a credit to account payable.
8 - The term posting means: a) Recording of transactions in a journal.
b) Transferring journal entries from journal to the ledger
accounts.
c) Proving the equality of debits and credits in the ledger.
d) Normally occurs before journalizing.
9- Before posting a payment of 10,000, the Accounts
payable of Ali firm had a normal balance of 32,000.
The balance after posting this transaction was:
a) 42,000
b) 10,000
c) 22,000
d) 32,000
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10 - A Trial Balance:
a) Will not balance if a correct journal entry is posted twice.
b) Is a list and total of all the debit and credit accounts at a
given period
C) Prove that all transaction has been recorded.
d) Prove the mathematical accuracy of journalized transaction.
11-A trial balance will not balance if: a) 200 cash withdrawn by the owner is debited to owner's
drawing, for 2000 and credit to cash for 200.
b) correct journal entry is posted twice.
c) Transaction is not journalized.
d) 350 payments on account are debited to accounts payable
for 35 and credited to cash for 35.
12 -The trial balance of El Huda firm had accounts with
the following normal balances:
Cash 10,000, services Revenue 170,000, Rent expense
payable 8,000, salaries expenses 80,000, owner's capital
84,000, Advertising 20,000, owner's drawings 30,000,
Building 122,000. In preparing a trial balance.
The total in the debit column is:
a) 270,000
b) 262,000
c) 232,000
d) 524,000
Q. (3): Complete each of the following sentences:
1 - The accounting cycle consists of the following steps
………, …………., ………., …………
2- Liabilities, owner's equity, and revenues are
…………balance.
3 - Assets and expenses increase recorded in …… side.
4 -Double – entry rule means…………………
5-…………… a chronological record of individual business
transaction.
6 - …………… is the recording of transactions in a journal.
7 - ……………. Contains a separate account for each Asset,
liability, and element of owner's equity.
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8 -……………. means transferring journal entries from
journal to the ledger accounts.
9 - "T" account is a simplified model of a formal ledger
account and consists of only three elements: a title
………., a………., and a ………….
10- When a firm buys Equipment on account, two accounts
affected, are ………….in the………… side, and ………….
in the …………side.
11- When a firm sells goods on account, two accounts
affected, are………….in the …………. side, and
…………. in the …………. side.
12- When a firm pays obligations owed to creditors, two
accounts affected, are …………. in the ……. side, and
………….in the …………. side.
Q (4): The following accounts come from the ledger of
Mohamed firm on December 31, 2013.
Building 176,000, owner's capital 40,000, salaries and
wages expense 84,000, cash 14,000, owner's drawings
16,000, prepaid insurance 12,000, service Revenue 190,000,
Accounts Receivable 8,000, salaries and mages payable
4,000. Accounts payable 44,000, Rent expense 6,000, Notes
payable 38,000.
Required:
Prepare a Trial Balance.
Q (5):
On May 1, 2012, Amir opened Travel Agency. The
following transaction were completed during the month.
1 - He invested 200,000 cash to start the agency.
2 - On May 2, Paid 2,000 cash for May office rent.
3 - On May 6, Purchased Car. For 50,000 cash
4 - On May 8, incurred 1,000 of advertising cost in the
United News, on account.
5 - On May 14, earned 20,000 for services rendered, 15,000
cash are received from customers, and the balance is
billed to customers on account.
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6 - On May 15, Paid 5,000 cash for May salaries and wages.
7 - On May 18, paid 400 cash to united News.
8- Received 3,000 cash from customers who have
previously been billed in transaction (5).
Required:
1 -Record the above transaction in the journal.
2 -Post the entries to related accounts in the Ledger.
3 -Prepare Trial Balance.
Q (6): Ali started a consulting firm on August 1, 2012. The
following transactions occurred the month of August.
1 - On August 1, Ali invested 60,000 cash in the business.
2 - On Aug 3, Purchased Equipment for 20,000 from Sami
firm on account.
3 - On Aug 4, purchased goods for 15,000 cash.
4 - On Aug 8 paid 1,000 to advertise in the Arab News.
5 - On Aug to Received 5,000 cash for services provided.
6 - On Aug 15, he sold goods for 10,000 to Omer firm,
received 6,000 cash.
7 - On Aug 20, Performed 4,000 of Services on account.
8 - On Aug 22, paid 3,000 for employee salaries.
9 - On Aug 25, paid to Sami 15,000.
10- On Aug 26, received a cash payment of 3,000 for
services provided on account on Aug 20.
11- On Aug 30, Ali withdraws 3,000 in cash from the firm
for his personal use.
Required:
1 - Journalize the previous transactions in the journal.
2 - Post the entries to related accounts in the ledger.
3 - Prepare the Trial Balance.
Q (7):
1- 2011 January 1, Adam Commenced business with 50,000
cash.
2 - Jan 2, Paid into bank 20,000.
3 - Jan 3, Purchased Building worth 20,000 from Ali firm
on account.
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4 - Jan 6, purchased goods worth 16,000 from Ashraf firm
on account.
5 - Jan 8, goods worth 3,000 sold to Amir on account.
6 - Jan 15, sold goods worth 10,000 for cash.
7 - Jan 16, goods returned by Amir 1,000.
8 - Jan 19, Paid rent 1,000.
9- Jan 21, withdrawn from bank 2,000 for firm use and
3,000 for personal use.
10- Jan 23, paid salaries 2,000 cash.
11- Jan 26, goods returned to Ashraf 1,000.
12- Jan 28, paid for firm furniture 5,000 by cheque.
Required:
1 - Record the above transaction in the journal.
2 - Post to cash account, and Bank account in the Ledger.
Q (8):
At 2010 September
1- Ahmed started business with Cash 70,000, Building 30,000,
furniture 10,000, and Bank 20,000.
3- Paid tuition fee of the son 5,000.
5- Paid household expenses 1,000
7- Purchase goods for 10,000 cash
8- Sold personal car for 20,000 and the amount is brought into the
business.
10- withdrew goods at cost for personal use 3,000.
13- Sold goods to Ali on credit 4,000.
14- Sold old furniture 8,000 cash.
18- Purchase goods on account from Rami 5,000
22- Receive a cheque from Ali 2,000.
25- Issue a cheque to Rami 2,000.
26- Withdrew cash 2,000, and goods at selling price 3,000 for
personal use.
28- Returned goods to Rami 1,000.
29- Paid the following expenses, rent 1,000. Salaries and wages 2,000
for cash, and advertising 3,000 for a cheque.
30- Ali returned goods 1,000.
Required:
1) Record the above transaction in the journal.
2) Post the entries to related accounts in the Ledger.
3) Prepare the Trial Balance.
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Chapter 5: Adjusting the Accounts:
- Types of Adjusting Entries.
- Adjusting Entries for Prepayments.
- Prepaid Expenses.
- Unearned Revenues.
- Adjusting Entries for Accruals.
- Accrued Expenses.
- Accrued Revenues.
- The Impact of Adjusting Entries on Financial
Statements.
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Chapter Five
Adjusting the Accounts
Learning Objectives:
- Identify the major types of adjusting entries.
- Explain why adjusting entries are needed.
- Prepare adjusting entries for prepayments.
- Prepare adjusting entries for accruals.
- Explain the effect of adjusting entries on income statement
and balance sheet.
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CHAPTER FIVE
ADJUSTING THE ACCOUNTS
We would need no adjustments if we could wait to
prepare financial statements until a company ended its
operations or adjectives. At that point, we could easily
determine its final balance sheet and the amount of lifetime
income it earned.
But, several Parties, such as owners, employees,
government agencies, need immediate feedback about how
companies well they are doing.
Therefore, accountants divide the economic life of a
business into artificial time periods; this convenient
assumption is referred to as periodically assumption
Adjustments or adjusting the accounts depends on the
accrual basis accounting.
Under the accrual basis, companies record transaction
that change a company's financial statements in the periods
in which the events occur. For example, using the accrual
basis to determine net income means companies recognize
revenues when earned rather than when they receive cash. It
also means recognizing expenses when incurred rather than
when paid.
For revenues to be recorded in the period in which they
are earned, and for expenses to be recognized in the period
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in which they are incurred, companies make adjusting
entries.
For revenues and expenses to be reported in the correct
period, companies make adjusting entries at the end of the
accounting period.
Adjusting entries are required every time a company
prepares financial statements. The company analyzes each
account in the trial balance to determine whether it is
complete and up to date for financial statement purpose.
Every adjusting entry will include one income statement
account and one balance sheet account.

Types of Adjusting Entries:
Adjusting entries are classified as either prepayments
or accruals as follows: 1) Prepayments:
A)
Prepaid Expenses: Expenses paid in cash and
recorded as assets before they are used or consumed.
B)
Prepaid (unearned) Revenues: cash received and
recorded as liabilities before revenue is earned.
2) Accruals:
A)
Accrued Expenses (expenses payable): Expenses
incurred but not yet paid in cash or recorded.
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B)
Accrued Revenues: Revenues earned but not yet
received in cash or recorded. Each of these classes has
subcategories as shown below:
Prepayments
Accruals
1 – Prepaid Expenses. Expenses paid
in cash and recorded as assets before
they are used or consumed.
2 – Unearned (Prepaid) Revenues.
Revenues received in cash and
recorded as liabilities before they are
earned.
3- Accrued Expenses. Expense
incurred but not yet paid in cash
recorded.
4 – Accrued Revenue. Revenues
earned but not yet received in cash or
recorded.
(1) Adjusting Entries for Prepayments:
Companies adjust for prepayments to record the
portion of the prepaid that represents the expense incurred
or the revenue earned in the current period, where for
prepayments, a journal entry already has been made in asset
or liability accounts and an adjusting entry is needed to
move the balances to expense or revenue accounts in the
next accounting period.
A) Prepaid Expenses:
Prepaid expenses are initially recorded on the balance
sheet as an asset than being immediately expensed.
 Insurance:
Consider the case in which the firm prepays insurance
premiums in one period for insurance coverage in the next
period.
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The journal entry made at the time of payment would
be like the following: -
 Journal Entry for prepaid insurance:
Prepaid Insurance (Asset) xxx
Cash
xxx
In the next period when the insurance coverage is in effect,
one makes the following adjusting entry: -
 Adjusting Entry for prepaid insurance at the end
of period:
Insurance Expense
xxx
prepaid insurance xxx
(Asset)
Example (1):
Assume on 1/4/2013 the firm paid 4800 insurances for
one year.
 Journal Entry at 1/4/2013
Prepaid Insurance
4800
Cash
4800
 Adjusting Entry at 31/12/2013
Insurance per month = 4800/12 = 400
Insurance for 2013 (9 months)
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(1/4 → 31/12) = 400 x 9 = 3600
Insurance Expense
3600
Prepaid Insurance 3600
 The Impact on the Income statement:
Income statement
Expenses
Insurance Expense
3600
 The Impact on the Balance sheet:
Balance sheet
Assets
Current Assets
Prepaid Insurance
1200
(4800 – 3600)
 Office Supplies:
Example (2):
The Office supplies account currently shows 2,000
balances. A count of the supplies determines that only 5,00
remains.
 Adjusting Entry at 31/12
Office Supplies Expense
Office Supplies
1,500
1,500
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 Adjusting entry for long-term assets (Depreciation of
Fixed Assets):
The adjusting entry for long-term assets differs in that
instead of reducing the asset directly; a contra account is
used that is subtracted from the asset on the balance sheet.
Depreciation Expense xxx
Accumulated Depreciation
xxx
Note: Accumulated depreciation is a contra account that
is subtracted from the asset on the balance sheet.
It has a normal credit balance.
Example (3):
Assume a firm purchased equipment on 1/1/2012
for cost 30,000, depreciation rate of 10%.
 Adjusting entry 31/12/2012:
Depreciation expense = 30,000 x 10% = 3,000
Depreciation Expense 3,000
Accumulated Depreciation
3,000
 The Impact on the Income statement:
Income Statement
Expenses:
Depreciation Expense
3,000
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 The Impact on the Balance sheet:
Balance sheet
Fixed Assets:
Equipment
30,000
- Accumulated depreciation
(3,000)
Book value
27,000
B) Prepaid (unearned) Revenues:
Revenue cannot be recorded until the income has been
earned. Cash received in advance of income realization
should be initially recorded in a liability account such as
prepaid (unearned) Revenue. An adjusting entry later
becomes necessary as the revenue is earned. The liability
should be reduced, and the revenue recorded.
 Journal Entry for Prepaid Revenue: Cash
xxx
Prepaid Revenue
xxx
 Adjusting entry for Prepaid Revenue at the end of
period:
Prepaid Revenue xxx
Revenue
xxx
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Example (4):
Ali firm previously received 800 for services in
advance of providing the service. Ali has now earned 500 of
the money.
Prepaid Revenue 500
Revenue
500
 The Impact on Income statement:
Income statement
Revenues:
Services Revenue
500
Balance sheet
Liabilities:
Prepaid Revenue
300
(2) Adjusting Entries for Accruals:
An accrual involves a future exchange of cash that
must be recorded on the income statement before cash is
exchanged.
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A) Accrued Expenses (Expenses payable):
Interest, Taxes, salaries are common examples of
accrued expenses.
 Adjusting entry for Accrued Expenses:
Salaries expenses xxx
Accrued Salaries
xxx
(Liability)
Example (5):
On 31/12/2012 a salaries of 10,000 is due but not paid.
Salaries expense 10,000
Accrued Salaries
10,000
 The Impact on Income statement:
Income Statement
Expenses:
Salaries expense
10,000
Balance sheet
Liabilities:
Accrued Salaries
10,000
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B) Accrued Revenues:
Accrued revenues may result from services that have
been performed but not yet billed or collected, as in the case
of commissions and fees, these may be unrecorded because
only a portion of the total service has been provided and the
clients won't be billed until the service has been completed.
It’s known as sales or provides services on account.
Accounts Receivable (asset) xxx
Revenue
xxx
Example (6):
On 1/10/2012 Ali Advertising Agency earned 3,000 for
advertising services that have not been recorded.

Adjusting Entry:
Accounts Receivable 3,000
(asset)
Service Revenue
3,000
 The Impact on Income statement:
Income statement
Revenues:
Services Revenue
3,000
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 The Impact on balance sheet:
Balance sheet
Current Assets:
Accounts Receivable (Accrued Revenues)
3,000
Example (7)
The ledger of Ali Company, on December 31, 2019,
includes Balance accounts before adjusting entries:
Advertising 4,300, Office Supplies 3,800, Equipment
40,000,
accumulated
depreciation
equipment
8,000,
Services revenue 22,000, Salaries 4,000.
An Analysis of the accounts shows the following:
1)
Advertising pays at 300 per month.
2)
Office Supplies remained at the end of year 1,800.
3)
Rate of the equipment depreciation 10%.
4)
Services revenue for the year 25000.
5)
Monthly salaries 500.
Required:
1)
Prepare the adjusting entries for the December 31.
2)
Determine the impact on financial statements.
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‫‪Solution:‬‬
‫‪1- Adjusting Entries:‬‬
‫‪3600‬‬
‫‪3600‬‬
‫‪Advertising Expense‬‬
‫‪1.‬‬
‫‪Prepaid Advertising‬‬
‫ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ‬
‫‪2,000‬‬
‫‪2000‬‬
‫‪Office Supplies Expense‬‬
‫‪2.‬‬
‫‪Office Supplies‬‬
‫ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ‬
‫‪4000‬‬
‫‪4000‬‬
‫‪Depreciation Expense‬‬
‫‪3.‬‬
‫‪Accumulated depreciation‬‬
‫‪25,000‬‬
‫‪25,000‬‬
‫‪Accrued service Revenue‬‬
‫‪4.‬‬
‫‪Service Revenue‬‬
‫ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ‬
‫‪2000‬‬
‫‪2000‬‬
‫‪Salaries Expense‬‬
‫‪Accrued Salaries‬‬
‫‪5.‬‬
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
The Impact on Income statement
Income statement
Revenues
Service Revenue
25,000
- Expenses
Advertising
3600
Supplies
2000
Depreciation of Equipment
4000
Salaries
6000
Total Expenses
(15600)
Net income
9400
Balance Sheet
Assets
Equipment
40000
- Accumulated Depreciation
(12000)
Book value
28000
Prepaid Advertising
700
Supplies
1800
accrued Revenues
3000
Liabilities
Accrued Salaries
2000
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Example (8)
At the end of July 2020, the first month of operation to Ali
firm, he attempted to prepare monthly financial statements.
The following information relates to July.
1 - On July 1, the firm borrowed 40,000 from Bank Misr
on a 10-year mortgage. The annual, interest rate 15%.
2 - Revenue earned but unrecorded for July totaled 2,000.
3 - On July 31, the firm owed its employees 4,000 in
salaries and wages that will be paid on August 1.
Required:
Prepare the adjusting entries for the month of July.
Solution:
1.
Interest Expense
500
Interest Payable
500
1
15
x12 )
100
(40,000 x
2.
Accounts Receivable
2,000
Service Revenue
3.
Salaries and wages Expense
Salaries and wages payable
2,000
4,000
4,000
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Questions of Chapter five:
Adjusting the Accounts
Q: (1) What meant by: Accrual basis, prepaid expenses, unearned revenues,
accrued expenses, Accrued revenues.
Q (2) Put (true) or (false):
1- Adjustment entries affect income statement accounts only.
2- Accrued expenses and accrued revenues appear under current
liabilities in balance sheet.
3- The difference between prepaid expenses and prepaid
revenues is that the first is considered an asset while the second
is a liability.
4- Adjustment entries are a direct result of the application of the
accrual basis.
5- prepaid rent, accrued revenues, and notes receivable are
current assets.
Q: (3) Choose the best answer: 1 - Which of the following statements about the accrual
basis of accounting is false?
a) Revenue is recognized in the period in which it is earned.
b) Expense is recognized in the period in which it is
incurred.
c) Revenue is recorded only when cash is received, and
expense is recorded only when cash is paid.
d) Events that change a company's financial statements are
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recorded in the periods in which the events occur.
2 - Adjusting entries are made to ensure that: a) Revenues are recorded in the period in which they are
earned.
b) Expenses are recognized in the period in which they are
incurred.
c) Income statement and balance sheet accounts have
correct balances at the end of an accounting period.
d) All of the above.
3 - Each of the following is a major type of adjusting
entries except:
a) accrued revenues.
b) Prepaid expenses.
c) rent expense
d) Accrued expenses.
4-
Adjustments for prepaid expenses:
a) Decrease revenues and increase assets.
b) Decrease assets and increase expenses.
c) Decrease expenses and increase liabilities.
d) Decrease assets and increase revenues.
5-
Accumulated Depreciation is:
a) An owner's equity account.
b) A contra asset account
c) An asset accounts
d) A liability accounts
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6-
Adjustments for prepaid revenues:
a) Decrease liabilities and increase revenues.
b) Decrease revenues and decrease assets.
c) Increase assets and increase revenues
d) Increase liabilities and decrease revenues.
7-
Adjustments for accrued revenues:
a) Decrease assets and decrease revenues.
b) Decrease liabilities and increase revenues.
c) Have an asset and revenues account relationship.
d) Have liabilities and revenues account
relationship.
Assuming that the balance of office supplies at business
was 15,000 pounds, during the year, office supplies were
purchased at an amount of 4,000 pounds, and at the end of
the fiscal year, it was found that there were office supplies
left at an amount of 2,000 pounds. Questions from (8-12)
8- Office supplies available during the fiscal year in the
amount.
a) 15000
b) 17000
c) 19000
d) 21000
9- The debit side for the office supplies adjustment
entry is as follows:
a) 17000 Office supplies
b) 21000 expenses of Office supplies
c) 17000 expenses of Office supplies
d) 19000 Office supplies
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10- The credit side for the office supplies adjustment
entry is as follows:
a)17000 Office supplies
b) 21000 expenses of Office supplies
c) 17000 expenses of Office supplies
d) 19000 Office supplies
11- appears in income statement:
a)17000 Office supplies
b) 17000 expenses of Office supplies
c) 19000 expenses of Office supplies
d) 2000 Office supplies
12- appears in balance sheet
a)17000 Office supplies
b) 17000 expenses of Office supplies
c) 19000 expenses of Office supplies
d) 2000 Office supplies
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REFERENCES
1.
Aastha
Dogra,
"Purpose
of
Accounting",
www.buzzle.com, June 2010.
2.
Accounting coach, "Accounting Basics", www.
Accounting Coach. Com, 2012.
3.
Anne Britton & Chris Waterston, "Financial
Accounting", Prentice Hall, England, 2006.
4.
Clyde P. Stickney, Roman L. Weil, Katherine
Schipper, Jennifer Francis, " Financial Accounting
an introduction to concepts, methods, and uses",
South-Western, Cengage Learning, Canada,
2010.
5.
Gary A. Porter, and Curtis L. Norton, "Using
Financial Accounting Information: The Alternative
to Debits and Credits", Thomson South- Western,
USA, 5th Edition, 2008.
6.
Geemiz,
"Theory
Geemiz.com, 2010.
of
Accounts",
www.
Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
116
7.
Jerry J. weygandt, Paul D. Kimmel, and Donald E.
Kieso, "Financial Accounting", John Wiley &
Sons, New York, USA, 6th Edition, 2008.
8.
____________, "Accounting Principles", John
Wiley & Sons, New York, USA, 10th Edition, 2012.
9.
Jim
Riley,
"Introduction
to
Accounting",
www. Tutor 2u.net, Sep 2012.
10. Medhat A. El- Rashed Salem & Safinaz Abd-Elahi
Abd- Elhamid, "Introduction to Accounting",
Faculty of Commerce Cairo University, 2017
11. Quickmba, "Adjusting Entries", www. Quickmba.
Com, 2010.
Ali-Al-Sayed-Ali-AbdulRahman_40210_10521575039
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Glossary
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‫‪Glossary‬‬
‫محاسبة‬
‫‪Accounting‬‬
‫المحاسب‬
‫‪Accountant‬‬
‫المحاسبون‬
‫‪Accountants‬‬
‫أساس االستحقاق المحاسبي‬
‫‪Accrual Basis of Accounting‬‬
‫إطفاء ‪ -‬لألصول غير الملموسة‬
‫األصول‬
‫الميزانية العمومية ‪ -‬قائمة المركز المالي‬
‫القيمة الدفترية‬
‫‪Amortization‬‬
‫‪Assets‬‬
‫‪Balance Sheet‬‬
‫‪Book Value‬‬
‫حساب أرس المال‬
‫‪Capital Account‬‬
‫النفقات الرأسمالية‬
‫‪Capital Expenditures‬‬
‫مكاسب أرسمالية ‪ -‬أرباح رأسمالية‬
‫خسائر رأسمالية‬
‫األساس النقدي المحاسبي‬
‫التبويب – التصنيف‬
‫‪Capital Gains‬‬
‫‪Capital Losses‬‬
‫‪Cash Basis of Accounting‬‬
‫‪Classification‬‬
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Common Stock
Consistency Principle
Account Balance
‫األسهم العادية‬
‫مبدأ االتساق – الثبات‬
‫رصيد الحساب‬
Accounting Assumptions
‫الفروض المحاسبية‬
Accounting Concepts
‫المفاهيم المحاسبية‬
Materiality
Conservatism
Objectivity
Accounting Cycle
Accounting Equation
Accounting Information
Accounting Objectives
‫األهمية النسبية – المادية‬
‫ التحفظ‬- ‫سياسة الحيطة والحذر‬
‫الموضوعية‬
‫الدورة المحاسبية‬
‫المعادلة المحاسبية‬
‫المعلومات المحاسبية‬
‫األهداف المحاسبية‬
Accounting Period (Periodicity) ‫ الفترة المالية‬- ‫الفترة المحاسبية‬
Accounting Principles
‫المبادئ المحاسبية‬
Accounting Standards
‫المعايير المحاسبية‬
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‫ الدائنون‬- ‫حسابات الموردون‬
Accounts Payable
Accounts Receivable
‫حسابات العمالء – المدينون‬
Accrued Expenses
‫مصروفات مستحقة الدفع‬
‫إيرادات مستحقة القبض‬
Accrued Revenues
‫مجمع االهالك‬
Accumulated Depreciation
‫ميزان المراجعة المعدل‬
Adjusted Trial Balance
‫قيد تسوية‬
Adjusting Entry
‫تسوية‬
Adjustment
‫المصروفات اإلدارية‬
Administrative Expense
Allowance for doubtful Account
Economic Entity Assumption
Going Concern Assumption
‫فرض الوحدة االقتصادية المستقلة‬
‫فرض استمرارية المشروع‬
‫فرض وحدة النقود للقياس‬
Monetary Unit Assumption
‫مبدأ التكلفة التاريخية‬
Historical Cost Principle
Revenue Recognition Principle
Matching Principle
‫مخصص الديون المشكوك فيها‬
‫مبدأ االعتراف باإليراد‬
‫ اإليرادات بالمصروفات‬- ‫مبدأ المقابلة‬
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‫مبدأ اإلفصاح التام‬
‫‪Full Disclosure Principle‬‬
‫مبدأ تحقق اإلي ارد‬
‫‪Revenue Realization Principle‬‬
‫المنشأة (الوحدة) االقتصادية‬
‫عملية تجارية‬
‫رأس المال‬
‫النقد – النقدية‬
‫التدفقات النقدية من العمليات التشغيلية‬
‫التدفقات النقدية‬
‫قائمة التدفقات النقدية‬
‫رأس مال األسهم العادية‬
‫اإلطار المفاهيمي – النظري‬
‫الثبات – االتساق‬
‫حساب مقابل ‪ -‬حساب عكسي‬
‫رأس المال المساهم به‬
‫شركة مساهمة‬
‫تكلفة البضاعة المباعة‬
‫‪Business Entity‬‬
‫‪Business Transaction‬‬
‫‪Capital‬‬
‫‪Cash‬‬
‫‪Cash Flow from operations‬‬
‫‪Cash Flows‬‬
‫‪Cash Flows Statement‬‬
‫‪Common Stock‬‬
‫‪Conceptual Frameworks‬‬
‫‪Consistency‬‬
‫‪Contra Account‬‬
‫‪Contributed Capital‬‬
‫‪Corporation‬‬
‫‪Cost of Goods Sold‬‬
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‫مبدأ التكلفة‬
‫‪Cost Principle‬‬
‫الجانب الدائن‬
‫‪Credit‬‬
‫الدائنون‬
‫‪Creditors‬‬
‫األصول المتداولة‬
‫‪Current Assets‬‬
‫التكلفة الجارية‬
‫‪Current Cost‬‬
‫االلتزامات المتداولة‬
‫‪Current Liabilities‬‬
‫المدينون‬
‫‪Debtors‬‬
‫النفاذ ‪ -‬لألصول االستخراجية أو المصادر الطبيعية‬
‫اهالك‬
‫مصروف االهالك‬
‫المنشآت (الوحدات) االقتصادية‬
‫حق الملكية (صافي األصول) للمساهمين‬
‫طريقة حق الملكية ‪ -‬نسبة الملكية‬
‫المصروفات‬
‫صافي التدفقات النقدية‬
‫‪Depletion‬‬
‫‪Depreciation‬‬
‫‪Depreciation Expense‬‬
‫‪Economic Entities‬‬
‫‪Equity‬‬
‫‪Equity Method‬‬
‫‪Expenses‬‬
‫‪Net Cash Flows‬‬
‫صافي الدخل‬
‫‪Net Income‬‬
‫مجمل الدخل‬
‫‪Gross Income‬‬
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Notes Payable
Notes Receivable
Paid in Capital
Partnership
Patent
Equipment
Plant
property
‫أوراق الدفع‬
‫أوراق القبض‬
‫رأس المال اإلضافي زيادة عن رأس المال‬
‫شركة تضامن – أشخاص‬
‫براءة اختراع‬
‫معدات‬
‫ في مصنع‬- ‫أصول‬
‫ممتلكات‬
Prepaid Expenses
ً‫مصروفات مدفوعة مقدما‬
Prepaid Insurance
‫تأمين مدفوع مقدما‬
Profit
Profit Margin
Profitability
Promissory Note
Purchases
Purchases Returns
‫ربح‬
‫هامش الربح‬
‫الربحية‬
‫أوراق قبض – كمبياالت‬
‫مشتريات‬
‫مردودات المشتريات‬
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Purchases Allowances
Returns
Relevance
Understandability
‫مسموحات المشتريات‬
‫مردودات‬
‫المالئمة‬
‫قابلية الفهم‬
Extraordinary Items
‫ بنود استثنائية‬- ‫بنود غير عادية‬
Financial Reporting
‫التقارير المالية‬
Financial Statements
‫القوائم المالية‬
Funds
Goodwill
Historical Cost
Income
Income Statement
Interest
Internal Auditing
‫األموال‬
‫شهرة المحل‬
‫التكلفة التاريخية‬
‫دخل‬
‫قائمة الدخل‬
‫الفائدة‬
‫المراجعة الداخلية‬
Internal Control System
‫نظام الرقابة الداخلية‬
Inventory
‫المخزون – البضاعة‬
Investing Activities
‫األنشطة االستثمارية‬
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Investments
‫االستثمارات‬
Journal
‫دفتر اليومية‬
Liabilities
Long Term Investment
Long Term Liabilities
‫االلتزامات‬
‫استثمار طويل األجل‬
‫التزامات طويلة األجل‬
Market Value
‫القيمة السوقية‬
Maturity Date
‫تاريخ االستحقاق‬
Net Assets
‫صافى األصول‬
Objectivity
‫الموضوعية‬
Operating Activities
Owner's Equity
Allowance
Selling Expenses
Shareholders (Stockholders)
Short Term Investment
Short Term Notes Payable
Single Proprietorship
‫األنشطة التشغيلية‬
‫حقوق أصحاب المشروع‬
‫مخصص‬
‫ مصروفات البيع‬- ‫مصاريف البيع‬
‫المساهمون‬
‫استثمار قصير األجل‬
‫أوراق دفع قصيرة األجل‬
‫مشروع فردي‬
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Statement of Cash Flows
‫قائمة التدفقات النقدية‬
T-accounts
‫حسابات دفتر األستاذ‬
‫إيراد‬
Revenue
‫مبيعات‬
Sales
‫خصم المبيعات‬
Sales Discount
Sales Returns
‫مردودات المبيعات‬
Sales Allowances
‫مسموحات المبيعات‬
‫قيمة الخردة‬
Salvage Value
Statement of changes in Owners' Equity
‫قائمة التغيرات في حقوق الملكية‬
Stock
‫رأس مال األسهم‬
Trial Balance
‫ميزان المراجعة‬
Unearned Revenue
Unrealized Loss
Unrealized Profit - Unrealized Gain
‫إيراد غير مكتسب‬
‫خسارة غير متحققة‬
‫ربح غير متحقق‬
Gross Profit
‫مجمل الربح‬
Measurement Basis
‫أساس القياس‬
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Measurement Bias
Realization
Realized Income
Selling Price
Accounting System
Budget
Corporate Earnings
Earnings per Share
Financial Accounting
Fiscal Year
Fixed Assets
Monetary Items
Monetary
‫ انح ارف القياس‬- ‫تحيز القياس‬
‫تحقق‬
‫الدخل المحقق أو الربح المحقق‬
‫سعر البيع‬
‫النظام المحاسبي‬
‫موازنة تقديرية‬
‫أرباح الشركات المساهمة‬
‫ربحية السهم‬
‫المحاسبة المالية‬
‫السنة المالية‬
‫األصول الثابتة‬
‫البنود النقدية‬
‫نقدية – نقد‬
Discount Allowed
‫خصم مسموح به‬
Discount Received
‫خصم مكتسب‬
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Income
Income Statement
Interest
Interim Financial Reports
Internal Auditing
‫دخل‬
‫قائمة الدخل‬
‫الفائدة‬
‫التقارير المالية المرحلية‬
‫المراجعة الداخلية‬
Internal Control System
‫نظام الرقابة الداخلية‬
Inventory
‫المخزون – البضاعة‬
Investing Activities
‫األنشطة االستثمارية‬
Investments
‫االستثمارات‬
Journal
‫دفتر اليومية‬
Liabilities
‫االلتزامات‬
Long Term Investment
‫استثمار طويل األجل‬
Long Term Liabilities
‫التزامات طويلة األجل‬
Market Value
Marketable Debt Securities
Marketable Equity Securities
Maturity Date
‫القيمة السوقية‬
‫ على شكل سندات‬- ‫األو ارق المالية‬
‫األوراق المالية على شكل أسهم‬
‫تاريخ االستحقاق‬
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General Questions & Exercises
1- The principle which refers to the use of the same
accounting principles in each accounting period is:
a) Consistency.
b) Objectivity.
c) Historical cost.
d) Matching.
2- The gross increase in owner`s equity resulting from
business activities:
a) withdrawals. b) Capital. c) Expenses. d) Revenues.
3- The resources owned by businesses called:
a) Liabilities.
b) Owner`s equity.
c) Assets.
d) Profit.
4- The basic accounting equation is:
a) Assets = liabilities + owner`s equity
b) Assets = Liabilities
c) Liabilities = Assets + owner`s equity
d) owner`s equity = Assets + Liabilities
5- When there is an increase in cash and a decrease in
equipment:
a) There must also be decrees in capital.
b) There must also be an increase in liabilities.
c) There is no change in equities.
d) None of the above.
6- The accounting entity assumption means that:
a) For reporting purposes, an entity's life can be divided into
discrete time periods.
b) Business financial information is recorded and reported
separately from the owner's personal financial information.
c) The actual paid or received is the amount to be recorded
in accounting records.
d) None of the above.
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7- If the business has purchased land 10 Years ago for L.E
100,000. Assume that the market value of the land this year
L.E 800,000. The land shown in accounting recorded:
a) L.E 800,000.
b) L.E 700,000.
c) L.E 100,000.
d) None of the above.
8- A business owned by two or more persons associated as
partners
a) Partnerships.
b) Proprietorship.
c) Corporation.
d) All of the above.
9- When an enterprise purchases merchandise on credit, these
obligations are called:
a) cash.
b) Accounts receivable.
c) Accounts payable.
d) Owner's equity.
10- Ahmed decided to open a computer programming
services. He invested L.E 500,000 cash. This transaction
results in:
a) An equal increase in assets and liabilities.
b) An increase in one asset and equal decrease in another
asset.
c) An equal increase in assets and owner's equity.
d) None of the above.
11- Ali purchased computer equipment for L.E 20,000 on
account from Cairo Co. This transaction means that
there is:
a) Increase in one asset, decrease in another asset.
b) Increase in one asset, increase in a liability.
c) Increase in one asset, increase in a capital.
d) Non effect on equities.
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12- Mohamed paid salaries L.E 1000, rent L.E 500 and
utilities L.E 200 in cash. The effect of this transaction
is:
a) A decreasing in cash L.E 1700 and a decreasing in liabilities L.E
1700.
b) A decreasing in expenses L.E 1700 and a decreasing in owner's
equity L.E 1700.
c) A decreasing in cash L.E 1700 and a decreasing in owner's equity
L.E1700.
d) None of the above.
13- Which of the following financial statement lists
revenues, expenses and net income or net loss?
a) Income statement.
b) Balance sheet.
c) Owner's equity statement.
d) None of the above
14- Withdrew 1000 L. E for personal use. How is the
accounting equation affected?
a) Owner's equity increases, Assets increase.
b) Owner's equity decreases, Assets decreases.
c) Liabilities increase, Assets decreases.
d) None of the above.
15- Ali Company purchased merchandise at a cost of 210.000.
Determine the cost of goods sold, if you now that the
beginning inventory 80.000 and the ending inventory
50.000.
a) 340,000
b) 80,000.
c) 240,000.
d) 180,000.
Service sales for an enterprise during a month totaled 8.000,
of which 5.000 were for cash and the remainder were on
account.
16- What was the amount of the enterprise’s revenue?
a) 5000.
b) 13000.
c) 3000.
d) 8000.
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132
17- Which of the following is not asset:
a) Prepaid Revenues b) Prepaid expenses. c) Accrued Revenues. d) equipment.
18- Which of the following is not a liability:
a) Prepaid Revenues
b) Prepaid expenses.
c) Accounts Payable.
d) Accrued Expenses.
19- Sales revenue 80.000, beginning inventory 20.000, sales
return 9.000, Discount Allowed 6.000, ending inventory
25.000, Determine net sales.
a) 60.000
b) 65.000
c) 71.000
d) 55.000
20- Balance of paid salaries 100.000, month salaries 10.000.
a) There are prepaid salaries 20.000, They appear
within the assets
b) They're accrued salaries 20.000, They appear within
the assets
c) They're accrued salaries 20.000, They appear within
the liabilities.
d) Balance of salaries They appear at income statement
110.000.
21- Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and owner’s capital.
c. assets, liabilities, and owner’s drawings.
d. assets, owner’s drawings, and expenses
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22- Which of the following is not part of the recording process?
a. Analyzing transactions.
b. Preparing an income statement.
c. Entering transactions in a journal.
d. Posting journal entries.
23- The purchase of supplies on account should result in:
a. a debit to Supplies Expense and a credit to Cash.
b. a debit to Supplies Expense and a credit to Accounts
Payable.
c. a debit to Supplies and a credit to Accounts Payable.
d. a debit to Supplies and a credit to Accounts
Receivable
24- The trial balance of Jeong Company had accounts with
the following normal balances: Cash 5,000, Service
Revenue 85,000, Salaries and Wages Payable 4,000,
Salaries and Wages Expense 40,000, Rent Expense
10,000, Owner’s Capital 42,000, Owner’s Drawings
15,000, and Equipment 61,000. In preparing a trial
balance, the total in the debit column is:
a. 131,000.
c. 91,000.
b. 216,000.
d. 116,000
25- Mohamed started a service business, the following
events occurred during its first month of business.
1 - On January 1, 2019, Mohamed invested 70,000 cash and
30,000 of equipment.
2 - On Jan 6, Mohamed purchased furniture 5,000 cash for the shop.
3 - On Jan 10, Mohamed Paid 1,500 cash to rent space in a star mall
for Jan.
4 - On Jan 15, he purchased 10,000 of equipment on Account for the
shop.
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5 - On Jan 18, provide services 5,000 for cash.
6 - On Jan 20, sold part of the furniture for 2,000 received
1,500 in cash and the rest on the account.
7 - On Jan 25, he provided 3,000 of services on account.
8 - On Jan 27, paid 4,000 salaries in cash.
9 - On Jan 28, paid 2,000 in cash to pay a portion of the
equipment due from him.
10- Mohamed withdraws 2,000 cash for personal use.
Required:
1 - Record the above transaction in the journal.
2 - Post the entries to related accounts in the Ledger.
3 - Prepare Trial Balance.
4- Prepare income statement.
5- Prepare balance sheet.