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www.FOTAMAT-a.com Mid 1 Accounting 1

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Accounting activities:

1- identify: the economic events relevant to the business.

2- record: the events in a chronological order to provide a history to the

financial activities (bookkeeping).

3- communicate: the accounting reports to the end users.

users of accounting data (end users):

1- internal: inside the business:

Manager- finance directors- production supervisors company officers-

President of the company- Merchandise inventory clerk- The controller

of a company.

2-external: outside the business:

Investors- creditors- SEC taxing authorities- customers- labor unions-

regulatory agencies- President of the employees' labor union.

Accounting : the art of identifying, recording and communicating the

economic events in a logical manner for the purpose of providing

financial information for decision makers.



Accounting

standards

IASBInternational accounting

standards board

IFRS

international financial reporting standards

FASBFinancial accounting

standards board

GAAPGenerally accepted

accounting standards

measurement principles

cost principle fair value principle



cost principle: or historical cost principle means recording assets at their cost, when

the assets was purchased.

fair value principle: means reporting the assets and liabilities at fair value.

Relevance: means that financial information is capable of making a

difference in decision.

faithful representation: means that the numbers and descriptions match

what really existed or happened.

Assumptions

1- monetary unit assumption: requires that companies include in the

accounting records only transaction data that can be expressed in

money terms.

2- economic entity assumption: this assumption requires that the

activities of the entity be kept separate and distinct from the activities of

its owners and all other economic entities.

forms:economic entity

a business owned by one person. proprietorship: -1

a business owned by two or more persons. partnership: -2

a business organized as a separate legal entity under corporation: -3

corporation law and having ownership divided into transferable shares.



The basic accounting equation

Assets = Liabilities + Equity

Assets: the resources a business owns.

cash - account receivable (AR) - prepaid expense (prepayment)- building

- land.

Liabilities: claims against assets, existing debts and obligations.

Account payable (AP) - note payable (NP) - wages payable - unearned

revenue.

the ownership claim on total assets. Equity:

ordinary : amounts paid in by shareholders for the -Share capital a:

ordinary shares they purchase.

Retained earnings: b:

Revenues: the gross increase in equity resulting from the business 1:

activities.

: the cost of assets consumed or services used in the process Expenses 2:

of earning revenues.

assets which are an increase in net represents: net income Dividends -3

then available to distribute to shareholders.

فهم و حفظ تفاصيل هذه الصفحة, مهم تعرفون شنو يندرج تحت االست و االيبلتيز و االيكوتي مهم جدا -

و شنو اقسام الريتيند ايرننق.



FOTAMAT EXAMPLE

Fotamat is a girl who decided to start a business, small bakery,.

the costs of this business are

shop: 30,000 kd

equipment: 2000 kd

interior designing: 5000 kd

advertising: 3000 kd

the total cost is 40,000, but fotamat has only 35,000 kd, so she decided

to sum up the missing money by two ways:

1: 3000 kd loan from someone.

2: 2000 issue shares.



ents:Financial statem

presents the revenues and expenses and Income statement: -1

resulting net income or loss of a company.

loss. \Expenses = net income -Revenues

Summarizes the changes in : Retained earnings statement -2

retained earnings.

Ending RE:

Dividends -loss or etained earning + net incomebeginning r

reports the statement of financial position (balance sheet): -3

assets, liabilities and equity of a company.

summarizes information statement of cash flows: -4

concerning the cash inflows (receipts) and outflows

(payments).

عند االنتهاء من حل المسائل, الرجاء حل المسائل االختيارية, حيث تمكنكم -

من الحل بسهولة و توضح الفكرة لديكم و غالباً يأتي مثلها باالمتحان



1A-P1

Kinney’s Repair Ltd. was started on May 1. A summary of May

transactions is presented below.

1. Shareholders invested £10,000 cash in the business in exchange for

ordinary shares.

2. Purchased equipment for £5,000 cash.

3. Paid £400 cash for May office rent.

4. Paid £500 cash for supplies.

5. Incurred £250 of advertising costs in the Beacon News on account.

6. Received £4,700 in cash from customers for repair service.

7. Declared and paid a £1,000 cash dividend.

8. Paid part-time employee salaries £1,000.

9. Paid utility bills £140.

10. Performed repair service worth £980 on account.

11. Collected cash of £120 for services billed in transaction (10).

Instructions

1. Prepare a tabular analysis of the transactions, using the following

column headings: Cash, Accounts Receivable, Supplies,

Equipment, Accounts Payable, Share Capital, and Retained

Earnings (with separate columns for Revenues, Expenses, and

Dividends). Include margin explanations for any changes in

Retained Earnings. Revenue is called Service Revenue.



P1-3A



On May 1, Yoon Flying school a company that provides flying lessons

was started with an investment of 45,000,000$ cash in the business

Following are the assets and liabilities of the company on May 31,2011

also the revenues and expenses for the month of May.

5600 Cash 7200 Account Receivable

64000 Equipment

7500 Lesson revenue

500 Advertising exp

30000 Notes payable

1200 Rent expense

400 repairs exp

2500 Fuel exp

400 Insurance exp

800 Account payable

No additional investments were made in May, but the company paid

dividends of 1,500 during the month.

INSTRUCTIONS

A- Prepare the income statement and retained earnings statement for

the month of May and statement of financial position of May 31.

B- Prepare an income statement and a retained earnings statement for

May assuming the following data are not included above. (1) 900,000 of

revenues was earned and bellied but not collected at May 31, (2)

1,500,000 a fuel expense was incurred but not paid.







Credit accounts (cr) Debit accounts (dr) Liabilities Assets Equity Expenses Share capital Dividends Retained earnings Revenues

الدبت اكاونتس يزيدون بالدبت و يقلون بالكردت-

الكردت اكاونتس يزيدون بالكردت و يقلون -

بالدبت



BE2-1

For each of the following accounts, indicate the effects of debit and credit on the

accounts and the normal balance of the accounts

Normal balance Credit effect Debit effect Account

Account payable

Advertising expense

Service revenue

Account receivable

Share capital

Dividends



BE2-2

Transactions for the Sen company, which performs welding services, for the month

of June are presented below.

Identify the accounts to be debited and credited for each transaction.

Sen invests 4,000$ cash in exchange for ordinary shares in a small welding. business

June 1

for 900$. Purchases equipment on account 2

June rent. cash is paid to landlord for 800$ 3

Sent an invoice to L.Nigh 300$ for welding work performed on account.

12



FOTAMAT EXAMPLE

1- On April first, fotamat invested 35,000 kd in the business in exchange for ordinary shares.

2- On April third, Fotamat took a 3,000kd, loan from creditor,.

3-On April forth, Hessa paid 2,000kd for Fotamat in exchange for ordinary shares.

4-On April fifth, Fotamat bought a building for 30,000kd.

5- On April sixth, Fotamat purchased an equipment for 2,000kd.

6- On April seventh, fotamat paid 5,000 kd for interior designing service.

7- On April ninth, fotamat paid 3,000 kd for advertising.



Post the accounts then make a trail balance.



trial balance: a list of accounts and their balances.

* Its primary purpose is to prove (check) that the debits equal the credits

after posting.

* It's not a prove that the company has recorded all transactions or that

the ledger is correct.

Limitation of trial balance:

on is not journalized.a transacti -1

a correct journal entry is not posted. -2

a journal entry is posted twice.-3

incorrect accounts are used in journalizing or posting. -4

offsetting errors are made in recording the amount of a transaction. -5



P2-1A

Prairie Park ASA was started on April 1 by F. L. Wright and associates.

The following selected events and transactions occurred during April.

Apr. 1 Shareholders invested €50,000 cash in the business in exchange

for ordinary shares.

4 Purchased land costing €34,000 for cash.

8 Incurred advertising expense of €1,800 on account.

11 Paid salaries to employees €1,500.

12 Hired park manager at a salary of €4,000 per month, effective May

1.

13 Paid €1,500 cash for a one-year insurance policy.

17 Declared and paid a €1,400 cash dividend.

20 Received €6,400 in cash for admission fees.

25 Sold 100 coupon books for €30 each. Each book contains 10

coupons that entitle the holder to one admission to the park.

30 Received €8,500 in cash admission fees.

30 Paid €900 on balance owed for advertising incurred on April 8.

Prairie Park uses the following accounts: Cash, Prepaid Insurance, Land,

Accounts Payable, Unearned Service Revenue, Share Capital—Ordinary,

Dividends, Service Revenue, Advertising Expense, and Salaries and

Wages Expense.

Instructions

Journalize the April transactions.



DATE Account DR CR



P2-2A

Lena Fohn is a licensed accountant. During the first month of operations

of her business, Lena Fohn, AG, the following events and transactions

occurred.

1

May

Shareholders invested €20,000 cash in exchange for ordinary

shares.

2 Hired a secretary-receptionist at a salary of €2,000 per month.

3 Purchased €1,500 of supplies on account from Hartig Supply

Company.

7 Paid office rent of €900 cash for the month.

11 Completed a tax assignment and billed client €2,800 for services

performed.

12 Received €3,500 advance on a management consulting

engagement.

17 Received cash of €1,200 for services performed for Lucille Co.

31 Paid secretary-receptionist €2,000 salary for the month.

31 Paid 40% of balance due Hartig Supply Company.

Lena uses the following chart of accounts: No. 101 Cash, No. 112

Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No.

209 Unearned Service Revenue, No. 311 Share Capital—Ordinary, No.

400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729

Rent Expense.

Instructions

1. Journalize the transactions.

2. Post to the ledger accounts.

3. Prepare a trial balance on May 31, 2017.



DATE Account DR CR





Time period assumptions: dividing the economic life of a business into

artificial time periods.

Accounting time periods:

Month - Quarter - Year

month and quarter called interim periods.

Fiscal year: accounting time period that is one year length.

Calendar year: January 1 to December 31.

Accrual basis accounting: companies record transactions that change a

company's financial statement in the periods in which the events occur.

Cash basis accounting: companies record revenue when they receive

cash, and record expense when they pay out cash.

Revenue recognition principle: companies recognize revenue when it is

probable that future economic benefits will flow to the company and

reliable measurement of the amount of revenue is possible.

Expense recognition principle: expense occur when a company either

uses up assets or incurs liabilities as a result of its efforts to generate

revenue.



Prepaid expense: is an asset account. expenses paid in cash and

recorded as assets before they are used or consumed. like insurance,

supplies , advertising and rent.

Supplies ex.

On the first of October starbucks bought supplies that cost 3,000 kd. In

the end of the month remaining supplies cost is 1,200 kd. (adj. through use )



Insurance ex.

On the first of July, company made an insurance for a one year that cost

600 kd. ( adj. end of the period )

Building ex.

On the first of August company bought a building for 24,000 kd, it's

useful life is 10 years. ( adj. end of the period )



/Prepaid exPre adjusting

Unearned revenue: cash received and recorded as liabilities before

revenue is earned like rent, subscriptions and customer deposits for

future services.



ex.

On the first of January, fotamat bought a satrbucks card and deposit

20kd in it, fotamat consumed 12kd. ( adj. end of the period )

Pre adjusting/Unearned Rev



Accrued revenues: revenues earned but not yet received in cash or

recorded like interest revenue, rent and advertising.

the entry:

Account receivable xx

Revenue xx

adjusting ( when cash is received )

Cash xx

Account receivable xx

Rev AccruedPre adjusting/



Accrued expenses: expenses incurred but not yet paid in cash or

recorded like interest, rent, taxes and salaries

ex.Note payable

On the first of November company signed a 6000 kd 3-months note payable with 12%

annual interest rate. ( adj. end of the period )



Salaries ex.

Company pays salaries for its employee every 2 weeks, it pays 200 kd for 5 working days, last

salary paid was on 25 October and the next pay date is on the 8 of November. ( adj. end of

the period )

exp AccruedPre adjusting/



E3-7

The ledger of Villa Rental Agency SpA on March 31 of the current year

includes the selected accounts, shown below, before adjusting entries

have been prepared.

Debit Credit

Prepaid Insurance 3,600 €

Supplies 2,800

Equipment 25,000

Accumulated Depreciation—Equipment € 8,400

Notes Payable 20,000

Unearned Rent Revenue 9,900

Rent Revenue 60,000

Interest Expense –0–

Salaries and Wages Expense 14,000

An analysis of the accounts shows the following.

1. The equipment depreciates €320 per month.

2. One-third of the unearned rent revenue was earned during the

quarter.

3. Interest totaling €500 is accrued on the notes payable for the

quarter.

4. Supplies on hand total €840.

5. Insurance expires at the rate of €200 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries

are made quarterly. Additional accounts are Depreciation Expense,

Insurance Expense, Interest Payable, and Supplies Expense.



CR DR ACCOUNT Date



E3-8

Kaya Abbas, D.D.S. A.Ş., opened a dental practice on January 1, 2017.

During the first month of operations, the following transactions occurred.

1. Performed services for patients who had dental plan insurance. At

January 31, 875 of such services were performed but not yet

recorded.

2. Utility expenses incurred but not paid prior to January 31 totaled

520.

3. Purchased dental equipment on January 1 for 80,000, paying

20,000 in cash and signing a 60,000, 3-year note payable. The

equipment depreciates 400 per month. Interest is 500 per month.

4. Purchased a six-month malpractice insurance policy on January 1

for 18,000.

5. Purchased 1,600 of dental supplies. On January 31, determined

that 700 of supplies were on hand.

Instructions

Prepare the adjusting entries on January 31. Account titles are

Accumulated Depreciation—Equipment, Depreciation Expense, Service

Revenue, Accounts Receivable, Insurance Expense, Interest Expense,

Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities

Expense, and Utilities Payable.



CR DR ACCOUNT Date



E3-13

The trial balances before and after adjustment for Matusiak Company

OAO at the end of its fiscal year are presented below.

MATUSIAK COMPANY OAO

Trial Balance

August 31, 2017

Before Adjustment After Adjustment

Dr. Cr. Dr. Cr.

Cash €10,400 €10,400

Accounts Receivable 8,800 10,000

Supplies 2,300 700

Prepaid Insurance 4,000 2,500

Equipment 14,000 14,000

Accumulated Depreciation—

Equipment 3,600 € 4,900 €

Accounts Payable 5,800 5,800

Salaries and Wages Payable –0– 1,100

Unearned Rent Revenue 1,500 800

Share Capital—Ordinary 12,000 12,000

Retained Earnings 3,600 3,600

Service Revenue 34,000 35,200

Rent Revenue 11,000 11,700

Salaries and Wages Expense 17,000 18,100

Supplies Expense –0– 1,600

Rent Expense 15,000 15,000

Insurance Expense –0– 1,500

Depreciation Expense –0– 1,300

€71,500

€71,500

€75,100

€75,100

Instructions

Prepare the adjusting entries that were made.



CR DR ACCOUNT Date



QUESTION

The following information is available for Joud company on July 31,2017. At the end of a

monthly accounting period. Prepare the journal entry for each transaction below plus the

adjusting at the end of July. (NOTE that the appropriate adjusting entries has been recorded

for previous months).

1- Joud co. purchased a 1 year insurance policy on July 1 for 2400$.

2- On January 1st a tenant in an apartment building owned by Joud co.

paid Joud 6000$ as a yearly payment on 2017.

3-On July 1 the glance in office supplies was 100$. During July office

supplies costing 600$ were purchased, a physical count of office

supplies at July 31 revealed that there were 300$ on hand.



4-On April 30th, Joud co. purchased a truck for 22000$, it is estimated

to be used for 7 years with a residual value of 1000$.

5- Joud has two office employees who earn 100$ per day. They are paid

every Friday for a 5 days a week begins each Monday, July 31 is a

Wednesday.

6- On March 31th Joud borrowed 300,000$ from NBK on a 15 year

mortgage, the annual interest rate is 10%.

7- Revenue for services performed but not recorded for August totaled

5000$.



THE END

Good luck

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