College of Administration and Finance Sciences

Assignment (1)
Deadline: Saturday 16/10/2021 @ 23:59

Course Name: Principles of

Student’s Name:
Accounting
Course Code: ACCT101 Student’s ID Number:
Semester: 1st CRN:
Academic Year: 1443 H

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: /5 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
 Submissions without this cover page will NOT be accepted.

Assignment Question(s): (Marks 5)

 College of Administration and Finance Sciences

Q1. Discuss three of the accounting principles and assumptions with examples. (1 Mark)
Answer:
Revenue and expense principle

Here, revenues and expenses are calculated and an interview takes place between them, to find out

the value of profits and losses in the activities of the institution, according to the accounting accrual.

Expenses paid or payable thereafter are announced, with recognition of revenues, whether they are

due during the next period or were already received.

Revenue recognition principle

The principle of revenue recognition states that the accountant must record the company's revenue

immediately after the sale of the good or the completion of the provision of a service, regardless of

whether the price of this good or service was received immediately after its sale or even after a

period of time has passed after its sale.

For example, if an insurer receives $24,000 on December 28, 2021 to provide insurance protection

for 2022, the insurer will report revenue of $2,000 in each of the twelve months in 2022.

Historical Cost Principle

The historical cost principle states that an asset should always be recorded at the original purchase

price or cost and not the perceived value, and therefore, any changes in the asset's market value

should not affect how it is represented on the balance sheet.

Suppose the land was purchased for 20,00,000 in 2015, and now the value of that land has increased

to 50,00,000 in 2020. The land is already recorded in the records for 20,00,000 and will be recorded

at the same time until is achieved. It will not increase its value in the books of accounts.

Q2. In chapter 3, slide 42, there is a summary of the accounting cycle. Describe each step. (2 Marks)
 College of Administration and Finance Sciences

Answer:

 The organization begins its accounting cycle by recording transactions using journal entries.

 These entries are based on receipt of an invoice or recognition of a sale or completion of

other economic events.

 After the company posts the journal entries to individual general ledger accounts, an

unadjusted trial balance is prepared.

 The return balance ensures that the total debit is equal to the total creditor in the financial

records.

 At the end of the period, adjustment entries are prepared, which is the final result after

making the necessary corrections and the results from the passage of time. For example, a

settlement entry may include interest income that is earned over time.

 After the adjustment entries are posted, the company prepares the adjusted trial balance,

followed by the financial statements.

 The entity closes temporary accounts, income and expenses at the end of the period using

closing entries that transfer net income to retained earnings.

 Finally, the company prepares a post-closing trial balance to ensure debtor and creditor

matching.
 College of Administration and Finance Sciences

Q3. Explain the purpose and the importance of the income statement, and prepare the income
statement for ABC company based on the following information taken from the trial balance in 2020
(2 Marks)
Answer:

Consulting revenue SAR50,000

Rental revenue 20,000
Supplies expense 5,000
Rent expense 30,000
Wages expense 15,000

Purpose of the income statement: The income statement displays the company's revenues and

sales, and by tracking the list, it is possible to accurately know the size of the company's profit and to

know the main source of the company's business from which that profit is achieved.

Importance of Income Statement: It helps to determine the risk of not achieving certain cash flows,

which allows the user to estimate the impact of the change in demand for the company's product on

revenues and expenses, and then its impact on income.

Income statement for ABC company

Income SAR

Consulting Revenue 5000

0

Rental Revenue 2000

0

Total Income 70000

Expense
 College of Administration and Finance Sciences

Supplies Expense 5000

Rent Expense 3000

0

Wages Expense 1500

0

Total Expense 50000

Net Income= Total Income- Total Expense 20000