Chap4

Account balances are listed in the Unadjusted Trial Balance column using the ending balances
found in the general ledger.

Adjustments are entered here. Two possibilities:

Deferrals(‫ – )ﺗﺄﺟﯿﻼت‬Existing balances are changed
Accruals(‫ – )ﻣﺴﺘﺤﻘﺎت‬New information is entered

Adjustments are combined with the unadjusted trial balance amounts. Account balances are now
adjusted.

The income statement reports the revenues and expenses for a period of time.

The excess of the revenue over the expenses is called net income, net profit, or earnings. If
expenses exceed revenue, the excess is a net loss.

The statement of owner’s equity reports the changes in the owner’s equity for a period of time.

(It is prepared after the income statement because the net income or net loss for the period must
be reported in this statement)

The account form of a balance sheet lists the assets on the left and the liabilities and owner’s
equity on the right. It resembles the basic format of the accounting equation.

A classified balance sheet is a balance sheet that was expanded by adding subsections for (1)
current assets, (2) property, plant, and equipment, (3) current liabilities, and (4) long-term
liabilities.

Cash and other assets that are expected to be converted into cash, sold, or used up usually within
a year or less, through the normal operations of the business, are called current assets.

Property, plant, and equipment (also called fixed assets or plant assets) include assets that
depreciate (used‫ ) ﺗﺴﺘﮭﻠﻚ‬over a period of time. Land is an exception, since it is not subject to
depreciation.

Notes receivable are written promises by the customer to pay the amount of the note and possibly
interest at an agreed rate.

Liabilities that will be due within a short time (usually one year or less) and that are to be paid
out of current assets are called current liabilities.

Liabilities not due for a long time (usually more than one year) are called long-term liabilities.
Owner’s equity is the owner’s right to the assets of the business. Owner’s equity is added to the
total liabilities, and this combined total must be equal to the total assets.

Accounts that are relatively permanent from year to year are called permanent accounts or real
accounts. These accounts are carried forward from year to year.

Accounts that report amounts for only one period are called temporary accounts or nominal
accounts. Temporary accounts are not carried forward because they relate to only one period.

To report amounts for only one period, temporary account should have zero balances at the
beginning of the next period.

The entries that transfer balances are called closing entries.

Income Summary is a temporary account that is only used during the closing process.

Income Summary is sometimes called a clearing account.

post-closing trial balance is prepared after the closing entries have been posted. The purpose of
the post-closing (after closing) trial balance is to verify that the ledger is in balance at the
beginning of the next period.

The accounting process that begins with analyzing and journalizing transactions and ends
with preparing the accounting records for the next period’s transactions is called the
accounting cycle

1- Analyzing business transaction

2- Make journal entries
3- Post to ledger account
4- Unadjusted trail balance
5- Adjusting entries
6- Adjusted Trail balance
7- Financial statements
8- closing entry
9- post-closing trail balance

The annual accounting period adopted by a business is known as its fiscal year.
When a business adopts a fiscal year that ends when business activities have reached the lowest
point in its annual operation, such a fiscal year is also called the natural business year.
 Chap16

The statement of cash flows reports a firm’s major cash inflows and outflows for a period. It
provides useful information about a company’s ability to do the following:
Ø Generate cash from operations
Ø Maintain and expand its operating capacity (‫)ﻗﺪرﺗﮭﺎ اﻟﺘﺸﻐﯿﻠﯿﺔ‬
Ø Meet its financial obligations(‫)اﻟﺘﺰاﻣﺎت‬
Ø Pay dividends(‫)أرﺑﺎح‬

operating activities are cash flows from transactions that affect net income

investing activities are cash flows from transactions that affect investments

financing activities are cash flows from transactions that affect the equity and debt

direct method reports operating cash inflows (receipts) and cash outflows (payments)

The indirect method reports the operating cash flows by beginning with net income and adjusting
it for revenues and expenses that do not involve the receipt or payment of cash.
Chap7

purchase order authorizes the purchase of the inventory from an approved vendor(‫)ﺑﺎﺋﻊ‬.

receiving report establishes an initial record of the receipt of the inventory.

Recording inventory using a perpetual inventory system is also an effective means of

control. The amount of inventory is always available in the subsidiary inventory ledger

physical inventory or count of inventory should be taken near year-end to make sure that the
quantity of inventory reported in the financial statements is accurate.

first-in, first out (FIFO) inventory cost flow method, the first units purchased are assumed to be
sold first and the ending inventory is made up of the most recent purchases.

last-in, first out (LIFO) inventory cost flow method, the last units purchased are assumed to be
sold first and the ending inventory is made up of the first units purchased.

weighted average inventory cost flow method, the cost of the units sold and in ending
inventory is a weighted average of the purchase costs.