Accounting

Principles
Session (2)
Accounting in actions
Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Chapter (1): Accounting in actions

❖ The Basic Accounting Equation

Assets= Liabilities+ Owner’s Equity

Question (1):

Selected transactions for Beale Lawn Care Company are listed below.

1. Sold common stock for cash to start business.

2. Paid monthly utilities.
3. Purchased land on account.
4. Billed customers for services performed.
5. Paid dividends.
6. Received cash from customers billed in (4).
7. Incurred utilities expense on account.
8. Purchased equipment for cash.
9. Received cash from customers when service was performed.

Instructions

List the numbers of the above transactions and describe the effect of each transaction on
assets, liabilities, and stockholders’ equity. For example, the first answer is (1) Increase in
assets and increase in stockholders’ equity.

Solution

1. Increase in assets and increase in stockholders’ equity.

2. Decrease in assets and decrease in stockholders’ equity.
3. Increase in assets and increase in liabilities.
4. Increase in assets and increase in stockholders’ equity.
5. Decrease in assets and decrease in stockholders’ equity.
6. Increase in assets and decrease in assets.
7. Increase in liabilities and decrease in stockholders’ equity.
8. Increase in assets and decrease in assets.
9. Increase in assets and increase in stockholders’ equity.

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Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Question (2): Assets= Liabilities+ Owner’s Equity

Hayes Computer Timeshare Company entered into the following transactions during May 2020.

1. Purchased office equipment for $10,000 from Office Outfitters on account.

2. Paid $3,000 cash for May rent on storage space.
3. Received $12,000 cash from customers for contracts billed in April.
4. Performed services for Bayliss Construction Company for $4,000 cash.
5. Paid Southern Power Co. $10,000 cash for energy usage in May.
6. Stockholders invested an additional $30,000 in the business.
7. Paid Office Outfitters for the equipment purchased in (1) above.
8. Incurred advertising expense for May of $1,500 on account.

Instructions

Indicate with the appropriate letter whether each of the transactions above results in:

a. An increase in assets and a decrease in assets.

b. An increase in assets and an increase in stockholders’ equity.
c. An increase in assets and an increase in liabilities.
d. A decrease in assets and a decrease in stockholders’ equity.
e. A decrease in assets and a decrease in liabilities.
f. An increase in liabilities and a decrease in stockholders’ equity.
g. An increase in stockholders’ equity and a decrease in liabilities.

Solution

1 2 3 4 5 6 7 8
c d a b d b e f

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Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Assets= Liabilities+ Owner’s Equity (Ending Capital)

Ending capital= Beginning capital+ Investment- Drawings+ Revenues- Expenses

Decrease Owner’s Equity Increase Owner’s Equity

• Drawings • Investment
• Expenses • Revenues

Assets= Liabilities+ Owner’s capital- Owner’s Drawings+ Revenues- Expenses

Revenues > Expenses Revenues < Expenses

Revenues- Expenses
Net income Net loss

❖ Increases In Owner’s Equity:

.‫استثمارات المالك (مسجلة يف رأس مال المالك) وتزيد اإليرادات من حقوق ملكية المالك‬ •
.‫ وإقراض األموال‬،‫تأجي الممتلكات‬
‫ر‬ ،‫ أداء الخدمات‬،‫ (بيع البضائع‬،‫ عىل سبيل المثال‬.‫الت تم إدخالها لكسب الدخل‬ ‫اإليرادات الناتجة عن األنشطة التجارية ي‬ •
.)‫ واإليجار‬،‫ واإلتاوات‬،‫ واألرباح‬،‫ والفوائد‬،‫ والعموالت‬،‫ والخدمات‬،‫ والرسوم‬،‫المبيعات‬
.)‫ وليس المرصوفات‬،‫المساهمي (تقليل األرباح المحتجزة‬
‫ر‬ ‫ه توزيعات نقدية أو أصول أخرى عىل‬ ‫توزيعات األرباح ي‬ •

• Owner’s investments (are recorded in owner’s capital) and revenues increase the owner’s
equity.
• Revenues resulting from business activities entered for earning income. For example,
(Selling merchandise, performing services, renting property, and lending money. sales, fees,
services, commissions, interest, dividends, royalties, and rent).
• Dividends are the distribution of cash or other assets to shareholders (Reduce retained
earnings, not an expense).
.‫رسومات ونفقات المالك تقلل من حقوق ملكية المالك‬ •
.‫الشخص‬
‫ي‬ ‫لالستخدام‬ ‫األخرى‬ ‫األصول‬ ‫ه سحب مالك النقود أو‬ ‫ السحوبات ي‬/ ‫الرسومات‬ •
.‫ه تكلفة األصول المستهلكة أو الخدمات المستخدمة يف عملية كسب اإليرادات‬ ‫المرصوفات ي‬ •
،‫ ومصاريف الفائدة‬،‫ ونفقات اإليجار‬،)‫ ونفقات المرافق (نفقة الكهرباء والغاز والمياه‬،‫ ونفقات الرواتب واألجور‬،‫ (تكلفة البضائع المباعة‬،‫عىل سبيل المثال‬ •
.‫ومصاريف ضيبة الممتلكات‬
❖ Decreases In Owner’s Equity:
• Owner’s drawings and expenses decrease owner’s equity.
• Drawings /Withdrawals is the owner withdraw of cash or other assets for personal use.
• Expenses are the cost of assets consumed or services used in the process of earning
revenue.
• For example, (cost of goods sold, salaries and wages expense; utilities expense (electric,
gas, and water expense), rent expense, interest expense, and property tax expense.

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Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Question (1):

Classify each of the following items as dividends (D), revenue (R), or expense (E).

Item Answer
1. Advertising expense 1. Expense
2. Service revenue 2. Revenue
3. Insurance expense 3. Expense
4. Salaries and wages expense 4. Expense
5. Dividends 5. Dividends
6. Rent revenue 6. Revenue
7. Utilities expense 7. Expense

Assets= Liabilities+ Owner’s Equity

Question (2):

• Assets January 1, 2018, is LE 300,000

• Liabilities January 1,2018 is LE 220,000
• Total Revenue during 2018 is LE 425,000
• Total Expense during 2018 is LE 370,000
• Drawings by owner during same year is LE 8,500
Required:
Compute the following
A. Owners’ Equity on January 1,2018
= Assets on January 1, 2018 – Liabilities 1, 2018
= 300,000 – 220,000 = LE 80,000 (Beginning)

B. Net Income or Net Loss During 2018

= Revenue – Expense = 425,000 – 370,000
= LE 55,000 since the number is positive so the company recorded Net Income by
LE 55,000 while if the number is negative so company is recorded Net Loss.

C. Owners’ Equity on December 31, 2018

= Owners ‘Equity beginning + Net Income – Withdrawals
= 80,000 + 55,000 – 8,500 = LE 126,500

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Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Question (3):
A company has assets of LE 140,000 and Liabilities of LE 60,000 at the beginning of the year,
and Assets of LE 200,000 and Liabilities of LE 70,000 at the end of the year. During the year,
LE 20,000 was invested in the business and withdrawals of LE 24,000 were made.
Required:
What amount of the net income did the company earn during the year?
Answer
o Beginning of Owners Equity
= Assets Beg. 140,000 – Liabilities Beg. 60,000 = LE 80,000

o Ending of Owners Equity

= Assets Ending 200,000 – Liabilities Ending 70,000 = LE 130,000

o Ending of Owners Equity

= Beginning of Owners Equity + Investment + Net Income – Withdrawals
130,000 = 80,000 + 20,000 + Net Income – 24,000
So Net Income = 130,000 – 80,000 – 20,000 + 24,000 = LE 54,000

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 Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Question (4):
Using the Accounting Equation:
MO company making the following transaction during the month of May:
1 The company sell land with $5000 cash
2 The company sell supplies for $6000 on account (on credit) (billing) (postpone)
3 The company receive the balance due on transaction 2
4 The company sell equipment with $7000, that $3000 cash and the remaining on credit
5 The company receive the balance due on transaction 4
6 The company sell building with $4000 on notes receivable
7 The company receive the balance due on transaction 6
8 The company sell equipment with $7000, that $3000 cash and the remaining on notes receivable
9 The company receive the balance due on transaction 8
10 The company purchase land with $8000 cash
11 The company purchase supplies for $9000 on account (on credit) (billing) (postpone)
12 The company paid the balance due on transaction 11
13 The company purchase equipment with $8000, that $2000 cash and the remaining on credit
14 The company paid the balance due on transaction 13
15 The company purchase building with $5000 on notes payable
16 The company paid the balance due on transaction 15
17 The company purchase equipment with $8000, that $2000 cash and the remaining on Notes payable.
18 The company paid the balance due on transaction 17
19 The company provided repair service for client on $5000 cash
20 The company provided advertising service for $6000 on credit
21 The company receive the balance due on transaction 20
22 The company completed newspaper service for client $5000 on notes receivable
23 The company receive the balance due on transaction 22
24 The company provided advertising service for client for $6000 that $2000 cash
25 The company receive the balance due on transaction 24
26 The company receive cleaning service with $2000 cash
27 The company receive utility service for $5000 on credit
28 The company paid the balance due on transaction 27
29 The company receive maintenance service for $8000, that $3000 cash and the remaining on credit
30 The company paid the balance due in transaction 29
31 The company receive advertising service for client for $6000 that $2000 cash and remaining notes
payable
32 The company paid the balance due on transaction 31
33 The owner invests $3000 cash in the company
34 The owner invests $4000 cash and equipment $5000 for the company
35 The owner withdraws $3000 cash for his personal use

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 Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Assets Liabilities Owner’s Equity

Cash Land Supp A/R Equip Build N/R A/P N/P Capital Drawing Rev Exp
1 +5000 -5000
2 -6000 +6000
3 +6000 -6000
4 +3000 +4000 -7000
5 +4000 -4000
6 -4000 +4000
7 +4000 -4000
8 +3000 -7000 +4000
9 +4000 -4000
10 -8000 +8000
11 +9000 +9000
12 -9000 -9000
13 -2000 +8000 +6000
14 -6000 -6000
15 +5000 +5000
16 -5000 -5000
17 -2000 +8000 +6000
18 -6000 -6000
19 +5000 +5000
20 +6000 +6000
21 +6000 -6000
22 +5000 +5000
23 +5000 -5000
24 +2000 +4000 +6000
25 +4000 -4000
26 -2000 -2000
27 +5000 -5000
28 -5000 -5000
29 -3000 +5000 -8000
30 -5000 -5000

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 Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Cash Land Supp A/R Equip Build N/R A/P N/P Capital Drawing Rev Exp
31 -2000 +4000 -6000
32 -4000 -4000
33 +3000 +3000
34 +4000 +5000 +9000
35 -3000 -3000

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Doc Mahmoud Mohamed Badwi ‫ واذكر الله‬،‫صلي علي النبي من قلبك‬

Add to Your Information

Accounting VS Mathematics

Accounting Mathematics
• Accounting is a subject which teaches you • Mathematics is a limitless calculation of
how to keep a book of account. numbers.
• Accounting may include some computations • This is mainly based on your mental
and use equations included in math, but it capacity and strength covering some
is Not as complicated as math just the important branches like Geometry and
fundamentals of mathematics such as Algebra.
addition, subtraction, and ratios.
.‫ه مادة تعلمك كيفية االحتفاظ بدفي حسابات‬
‫المحاسبة ي‬ • .‫ه عملية حسابية ال حدود لها من األرقام‬
‫الرياضيات ي‬ •
‫قد تتضمن المحاسبة بعض العمليات الحسابية واستخدام‬ • ‫الت‬
‫أساس عىل قدرتك العقلية وقوتك ي‬
‫ي‬ ‫يعتمد هذا بشكل‬ •
‫ ولكنها ليست معقدة مثل‬،‫المعادالت المدرجة يف الرياضيات‬ .‫والجي‬
‫ر‬ ‫تغط بعض الفروع المهمة مثل الهندسة‬
‫ي‬
‫الرياضيات فقط أساسيات الرياضيات مثل الجمع والطرح‬
.‫والنسب‬

Accounting Assumptions
‫ ستبق ر‬:‫االستمرارية‬
.‫الشكة يف العمل يف المستقبل لتحقيق أهدافها‬
1) Going Concern
A firm will remain in business for future to achieve its objectives.

‫التعبي عنها بالنقود‬

‫ر‬ ‫ تسجيل بيانات المعامالت ي‬:‫الوحدة النقدية‬
‫الت يمكن‬
2) Monetary Unit .‫فقط‬
Recording only transaction data that can be expressed in money terms.
‫ يفيض أن جميع بيانات المعامالت المرتبطة بكيان محدد منسوبة بشكل واضح إىل الكيان وال‬:‫الكيان االقتصادي‬
3) Economic Entity .‫بمالك الكيان أو رشكاء العمل‬
‫ي‬ ‫تشمل بيانات المعامالت األخرى المرتبطة‬
All transactional data associated with a specific entity is assumed to be clearly attributed to
the entity and does not include other transactional data associated with the entity's owners
or business partners.

.‫ أو ما يعادله يتم استالمه أو دفعه‬،‫ ليس نقدا‬.‫ تسجيل المعامالت عند حدوثها‬:‫أساس االستحقاق‬
4) Accruals Basis
Recording transactions when they happen. NOT as cash, or its equivalent is received or paid.

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Doc Mahmoud Mohamed Badwi
Proprietorship
• Only one owner.
• Owner is often the manager. •
• Owner receives any profits,
suffers any losses, and is
personally liable for all
debts
.‫مالك واحد فقط‬
.‫المالك غالبا ما يكون المدير‬
‫ ويتحمل‬،‫يحصل المالك عىل أي أرباح‬
ً ً
‫ ويكون مسؤوال شخصيا عن‬،‫أي خسائر‬
.‫جميع الديون‬
‫ واذكر الله‬،‫صلي علي النبي من قلبك‬
Types of Business
Partnership Corporation
• Two or more owners. • Many owners and
Partnership agreement. ownership divided into
• Generally unlimited shares.
personal liability for all • Managed by a board of
debts director.
• Limited liability for all
debts
• .‫مالكان أو أكي‬ • ‫المالكي والملكية‬
‫ر‬ ‫العديد من‬ •
• ‫اتفاقية ر‬
.‫الشاكة‬ • .‫مقسمة إىل أسهم‬
• ‫غي المحدودة‬
‫المسؤولية الشخصية ر‬ • .‫يديرها مجلس إدارة‬ •
.‫بشكل عام عن جميع الديون‬ ‫مسؤولية محدودة عن جميع‬ •
.‫الديون‬
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