Accounting 1-4

Financial Accounting 2022
Fundamentals of Financial Accounting

Chapter (1): Accounting in Business
Importance of Accounting:
‫تحديد المعامالت‬
‫واالحداث‬
‫تسجيل المدخالت وقياسها‬
‫وتصنيفها‬
‫توصيل المعلومات‬
Users of Accounting:
1- Internal users:
Managerial accounting provides information needs for internal decision-makers.
Examples: Managers ‫مدير‬ Sales Staff ‫مسئول مبيعات‬

Officers/directors ‫مدير قسم‬ Budget Officers ‫مسئولي الميزانية‬
Internal Auditors ‫ مراجع داخلي‬Controllers ‫مراقبين‬
2- External users:
Financial accounting provides external users with financial statements.
Examples: Lenders ‫الدائنين‬ Environment ‫البيئة‬

Shareholders ‫حملة االسهم‬ Agencies ‫الوكاالت‬
Investors ‫المستثمرين‬ External Auditors ‫مراجع خارجي‬
Governments ‫الحكومة‬ Customers ‫العمالء‬
Ethics: ‫اخالقيات المهنة‬
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Generally Accepted Accounting Principles: ‫المبادئ المحاسبية المقبولة قبول عام‬

Financial accounting practice is governed by concepts and rules known as generally
accepted accounting principles (GAAP).
Setting Accounting Principles: ‫ما الجهة التي تحدد االسس المحاسبية‬

Financial Accounting Standards Board (FASB): ‫مجلس معايير المحاسبة المالية‬
It is the private group that sets both broad and specific principles (GAAP).
The Securities and Exchange Commission (SEC): ‫هيئة سوق المال‬

It is the government agency that establishes reporting requirements for companies
that issue stock to the public.
The International Accounting Standards Board (IASB): ‫مجلس معايير المحاسبة الدولية‬
It is an independent group (consisting of 16 individuals from many countries),
issues International Financial Reporting Standards (IFRS) that identify preferred
accounting practices to create harmony among accounting practices of different
countries. ‫مجلس معايير المحاسبة الدولية يضع المعايير الدولية للتقارير المالية‬

Accounting Principles: ‫المبادئ المحاسبية‬

1- Historical Cost Principle (Measurement Principle): ‫مبدأ التكلفة التاريخية‬
Financial transactions should be measured on the basis of actual cost (Historical
Cost)
2- Recognition Principle:
• Revenue Recognition Principle: ‫االعتراف بااليراد‬
Revenues must be recognized (recorded) when it is earned regardless it is
received/collected or not ‫االعتراف بااليراد عند اكتسابه بغض النظر عن تحصيل االموال‬
• Expense Recognition Principle: ‫االعتراف بالمصروفات‬

Expenses must be recognized (recorded) when it is incurred regardless it is
paid or not. ‫االعتراف بالمصروفات عند استحقاقها بغض النظر عن انه تم دفعها او ال‬
3- Matching Principle: ‫مقابلة االيرادات بالمصروفات‬

A company must record its expenses incurred to generate the revenues reported
at a given period.
4- Full Disclosure Principle: ‫االفصاح عن المعلومات‬

A company is required to report the details behind financial statements that would
impact users’ decision.
Accounting Assumptions: ‫االفتراضات المحاسبية‬

1- Business entity: ‫الوحدة المحاسبية المستقلة‬
A business is accounted for separately from other business including its owner.
2- Going concern: ‫االستمرارية‬
The business will continue operating instead of being sold or closed.
3- Monetary unit: ‫وحدة النقود‬
Expressing transactions and events in monetary ($) units.
4- Time period: ‫الفترة المحاسبية‬
The life of a business can be divided into time periods (typically years or months).
Forms of Business Entities: ‫انواع منشآت األعمال‬

1. Sole Proprietorship: only one owner.
2. Partnership: two or more owners forming the business
3. Corporation: big number of owners with shares.
Note: Owners of a corporation are called shareholders (or stockholders). Shareholders

are not personally liable for corporate acts.

Accounting Equation
(Balance Sheet Equation)
Assets = Liabilities + Equity

‘‘Uses of Resources’’ ‘‘Sources of Resources’’
Assets Liabilities Owners’ Equity
Recourses owned or Creditors’ claim Owners’ claim
controlled by a company on assets on assets
Cash Loans + Capital [Investment]
Accounts Receivable Accounts Payable - Withdrawals
Notes Receivable Notes Payable + Revenues
Vehicles (car, truck, bus,...) Borrowings - Expenses
Supplies Mortgage ‫رهن عقاري‬
Equipment Bonds Payable ‫سندات‬
Machine / Machinery Taxes Payable
Furniture (desk, chair, sofa) Wages Payable
Building / Hanger Interest Payable
Airplane Salaries Payable
Land …. Payable
Prepaid … Unearned …
Important Notes:
• Investment increases Owners’ Equity (+O.E)
• Revenues increase Owner’s equity (+O.E) such as:

Goods Sold (merchandise or products) ‫بيع بضاعة‬
Services provided ‫تقديم خدمات للعميل‬
Completed/ finished Work ‫انهاء خدمة او عمل للعميل‬
Completed project ‫االنتهاء من مشرةع للعميل‬
• Expenses Decrease Owner’s equity (- O.E) such as:

Rent Electricity
Wages Insurance
Salaries Telephone bill
Utilities Depreciation

Analyzing transactions using Accounting Equation

Transaction 1: Investment by Owners
• On December 1, Chas Taylor invests $30,000 cash to start a consulting
business.
Transaction 2: Purchase Supplies for Cash

• Chas Taylor’s company, FastForward purchases supplies paying $2,500 cash.
Transaction 3: Purchase Equipment for Cash

• FastForward purchases equipment for $26,000 cash.
Transaction 4: Purchase Supplies on Credit

• FastForward purchases Supplies of $7,100 on account.

Transaction 5: Provide Services for Cash

• The company provides consulting services receiving $4,200 cash.
Transaction 6 and 7: Payment of Expenses in Cash

• The company pays $1,000 rent and $700 in salary to the company’s only
employee.
Transaction 8: Provided Services on Account

• The company provided services to another party for $1,600 and rent
owned for the business $300 not received yet.
Transaction 9: Received Cash from Customers
• The business received $1,900 from debtors.
Transaction 10: Paid Cash for Creditors
• The business paid $900 cash for accounts payable.
Transaction 11: Withdrawal of Cash

• The owner withdraws $200 cash.
Home Work:
Resolve the previous example and prepare a summary of transactions table

Summary of Transactions: ‫ملخص للعمليات‬
40,400 40,400

Financial Statements: ‫القوائم المالية‬

Financial statements reflect the transactions we have recorded
1. Income Statement: ‫قائمة الدخل‬
Describes a company’s revenues and expenses
Note:
o If Revenues > Expenses → Net Income ‫صافي الدخل‬
o If Expenses > Revenues → Net Loss ‫صافي الخسارة‬
2. Statement of Owner’s Equity: ‫قائمة التغير في حقوق المالك‬

Show the changes of owner’s equity during a particular period.

3. Balance Sheet: (Statement of Financial Position) ‫الميزانية العمومية او قائمة المركز المالي‬
Describes a company’s financial position at a point in time.
4. Statement of Cash Flows: ‫قائمة التدفقات النقدية‬

Identifies cash inflows (receipts) and cash outflows (payments) over a period of
time.

Exercise:
Pamela Maben began a professional practice on June 1 and plans to prepare
financial statements at the end of each month. During June , Maben (the owner)
completed these transactions:
a. Owner invested $50,000 cash along with equipment that had a $10,000 market
value.
b. Paid $1,600 cash for rent of office space for the month.
c. Purchased $12,000 of additional equipment on credit. (due within 30 days)
d. Completed work for a client and immediately collected the $2,000 cash earned.
e. Completed work for a client and sent bill for $7,000 to be paid within 30 days.
f. Purchased additional equipment for $8,000 cash.
g. Paid assistant $ 2,400 cash as wages for the month.
h. Collected $5,000 cash on the amount owed by the client described in transaction
e.
i. Paid $12,000 cash to settle the liability created in transaction c.
j. Owner withdrew $500 cash for personal use.
Required: use the accounting equation to show the effect of the above transactions
Assets = Liabilities + Owners’ Equity
Cash + Accounts + Equipment = Accounts + Maben’s - Withdrawals + Revenues - Expenses
Receivable Payable Capital
a) +50,000 + 10,000 = + 60,000
b) - 1,600 + + = + - 1,600
Bal. 48,400 + + 10,000 = + 60,000 - 1,600
c) + + 12,000 = + 12,000 +
Bal. 48,400 + + 22,000 = 12,000 + 60,000 - 1,600
d) +2,000 + 2,000
Bal. 50,400 + 22,000 = 12,000 + 60,000 + 2,000 - 1,600
e) + 7,000 + 7,000
Bal. 50,400 + 7,000 + 22,000 = 12,000 + 60,000 + 9,000 - 1,600
f) - 8,000 + 8,000
Bal. 42,400 + 7,000 + 30,000 = 12,000 + 60,000 + 9,000 - 1,600
g) -2,400 - 2,400
Bal. 40,000 + 7,000 + 30,000 = 12,000 + 60,000 + 9,000 - 4,000
h) +5,000 - 5,000
Bal. 45,000 + 2,000 + 30,000 = 12,000 + 60,000 + 9,000 - 4,000
i) -12,000 = -12,000
Bal. 33,000 + 2,000 + 30,000 = 0 + 60,000 + 9,000 - 4,000
J) -500 - 500
Bal. 32,500 + 2,000 + 30,000 = 0 + 60,000 - 500 + 9,000 - 4,000
64,500 64,500
Chapter 02
Analyzing and Recording Transactions
Main Steps at Accounting Cycle:

1- Analyze each transaction and event from source documents ‫تحليل العمليات‬
2- Record transactions and events in a journal ‫تسجيل العمليات في دفتر اليومية‬
3- Post journal information to ledger accounts ‫الترحيل الي دفتر االستاذ‬
4- Prepare and analyze the trial balance ‫اعداد ميزان المراجعة‬
5- Preparing the Financial Statements. ‫اعداد القوائم المالية‬
Source Documents:
1- Checks
2- Bills from Suppliers
3- Purchase Orders
4- Bank Statements
5- Sales Tickets
6- Employee Earnings Records
The Account and its Analysis:

• An account is a record of increases and decreases in a specific asset,
liability, equity, revenue, or expense item. ‫الحساب هومكان لتسجيل للزيادة والنقص‬
• The general ledger is a record containing all accounts used by the
company.
• The chart of accounts is a list of all accounts and includes an
identifying number for each account.
Double-Entry Accounting: ‫القيد المزدوج‬

Each transaction affect, and be recorded in, at least two accounts. It also
means the total amount debited must equal the total amount credited for
each transaction.
Credit ‫ مساوي لمجموع‬Debit ‫اي عملية تؤثر في حسابين علي األقل كما يجب ان يكون مجموع‬
Note: Debits and Credits don’t mean increase or decrease.

Account Title
(left side) (Right Side)
Debit Credit

Normal Balance of Accounts:

❖ First: Debit Accounts:
Assets, Expenses, Drawings
[Normal Balance]
+ -
(increasing) (decreasing)
Debit Credit
Dr. Cr.
❖ Second: Credit Accounts:

Liabilities, Capital, Revenues
[Normal Balance]
- +
(decreasing) (increasing)
Debit Credit
Dr. Cr.
Double-Entry and the Accounting Equation:

Assets = Liabilities + Capital – + -
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
+ - - + - + + - - + + -
Normal Normal Normal
Norma Normal Norma
l l
Normal Balance Debit (Dr) Normal Balance Credit (Cr)

Assets Liabilities
Withdrawals Capital
Expenses Revenues

Required:
1. Prepare general journal entries for the preceding transactions using the
following accounts:
Cash (101); Accounts Receivables (102); Furniture (161); Notes Payable
(240); Worthy, Capital (301); Worthy, Withdrawals (302); Haircutting Services
Revenue (403); Wages Expense (623); and Rent Expense (640).
2. Post the journal entries from (1) to the ledger accounts (use T-accounts).
3. Prepare a trail balance as of August 31.
4. Prepare an income statement for August.
5. Prepare a statement of owner’s equity for August.
6. Prepare a balance sheet as of August 31.

:Transaction ‫شرح المسـألة لكل عملية‬
‫) زيادة في النقدية والمعدات نتيجة االستثمار بالشركة يؤدي إلي‬a

Debit < - + Cash & + Equipment :Increase in Assets ‫زيادة في االصــول‬
Credit < - +Capital ‫وبالتالي زيادة في رأس المال‬
‫) شراء أثاث للشركة وتم السداد نقدا ً يؤدي إلي‬b

Debit < - + Furniture :Increase in Assets ‫زيادة في االصــول‬
Credit <- -Cash :Decrease in Assets ‫ونقص في االصول‬
‫) سداد إيجـار وتم السداد نقدا ويؤدي الي‬c

Debit < - + Rent :Increase in Expenses ‫زيادة في المصروفات‬
Credit <- - Cash :Decrease in Assets ‫ونقص في االصول‬
:‫ يؤدي الي‬Note Payable ‫) شراء معدات علي الحساب من خالل دفع كمبيالة‬d
Debit < - + Equipment :Increase in Assets ‫زيادة في االصول‬
Credit <- + Note Payable :Increase in Liabilities ‫زيادة في االلتزامات‬
‫) استالم نقدية بسبب تقديم خدمات وتحقيق إيرادات‬e

Debit < - + Cash :Increase in Assets ‫زيادة في االصول‬
Credit <- + Revenues :Increase in Equity ‫زيادة في رأس المال‬
‫) تقديم خدمات علي الحساب وتحقيق إيرادات‬f

Debit < - + Accounts Receivables :Increase in Assets ‫زيادة في االصول‬
Credit <- + Revenues :Increase in Equity ‫زيادة في رأس المال‬
‫) استالم شيك بقيمة الخدمات التي تم تقديمها علي الحساب سابقا‬g

Debit < - + Cash :Increase in Assets ‫زيادة في االصول‬
Credit <- - Accounts Receivables :Decrease in Assets ‫نقص في األصول‬
‫) تم سداد األجور‬h
Debit < - + Wages Expense :Increase in Expenses ‫زيادة في المصروفات‬
Transaction (e) ‫) تماما ً مثل‬i
Note Payable ‫) سداد جزء من الكمبيالة‬j

Debit < - - Notes Payable :Decrease in Liabilities ‫زيادة في االلتزامات‬
‫) مسحوبات نقدية لصاحب الشركة لالستخدام الشخصي‬k

Debit < - + Withdrawals :‫ نتيجة زيادة المسحوبات‬،Decrease in Equity ‫نقص رأس المال‬

Requirement (1):
General Journal
Date Account Title PR Dr. Cr.
Aug.1 Cash 101 3,000
Store Equipment 165 15,000
Wealthy, Capital 301 18,000
(Owner's Investment.)
Aug.2 Furniture 161 600
Cash 101 600
(Purchased furniture for cash.)
Aug.3 Rent Expense 640 500
Cash 101 500
(Paid rent for August.)
Aug.4 Store Equipment 165 1,200
Note Payable 240 1,200
(Purchased additional equipment on credit)
Aug. 5 Cash 101 825
Haircutting Services Revenue 403 825
(Cash receipts from first half of August.)
Aug. 15 Accounts Receivable 102 100
(To record revenue for services provided on account.)
Aug. 17 Cash 101 100
Accounts Receivable 102 100
(To record cash received as a payment on account.)
Aug. 17 Wages Expense 623 125
Cash 101 125
(Paid wages to assistant.)
Aug. 31 Cash 101 930
(Cash Receipts from second half of August.)
Aug. 31 Note Payable 240 400
Cash 161 400
(Paid an installment on the note payable.)
Aug. 31 Worthy, withdrawals 302 900
Cash 101 900
(Cash withdrawal by owner.)

Posting Transactions: ‫ترحيل العمليات‬

Posting transactions is the process of transferring journal entries in
general journal to accounts in general ledger.
General Ledger:
Is a record/book of containing all accounts used by a firm.
An account:
Is a record of increases and decreases in a specific asset, liability, equity,
revenue, gain, expense, loss item. An account is usually opened in the
form of T-Account.
Note:
• The difference between total debits and total credits is the account balance.
• When the sum of debits exceeds the sum of credits, the account has
a debit balance.
• When the sum of credits exceeds the sum of debits, the account has
a credit balance.
• When the sum of debits equals the sum of credits, the account has
a zero balance.
Trial Balance: ‫ميزان المراجعة‬

Trial Balance is a list of accounts and their balances at a point in time. Trial Balance
used to verify the sum of debit accounts balances is equal to the sum of credit account
balances.
Preparing a trial balance: ‫إعداد ميزان المراجعة‬

1. List each account title and its amount from ledger. If the account has a zero
balance, list it with a zero in its normal balance column.
‫ أو الـ‬Dr. ‫ إدراج كل حساب موجود بدفتر األستاذ العام وقيمتة إلي ميزان المراجعة وأضافة الرصيد في عمود الـ‬.1
.‫ ولو قيمة الحساب بـصفر تضاف ايضا بنفس القيمة في العمود الخاص بطبيعة الحساب‬.‫ حسب طبيعة الحساب‬Cr.
2. Compute the total of debit balances and the total of credits balances.
.Cr. ‫ و الـ‬Dr. ‫ نقوم بجمع األرصدة الموجودة بعمود الـ‬.2
3. Verify total debit balances equal total credit balances.

Cr. ‫ مساوي إلجمالي الـ‬Dr. ‫ التأكد من أن أجمـالي الـ‬.3
Note: Equality of these two totals doesn’t guarantee that no errors were made.

Requirement (2): Post the journal entries from (1) to the ledger accounts.
‫• الترحيل من دفتر اليومية إلي دفتر األستـاذ العـام‬
Dr. Cr. Dr.

Cash No. 101 Rent Expense No. 640 Cr.
Aug. 1 3,000 Aug. 2 600 500
Aug. 15 825 Aug. 3 500 Balance 500
Aug. 17 100 Aug. 17 125
Aug. 31 930 Aug. 31 400 Dr. Notes Payable No. 240 Cr.
Aug. 31 900 Aug. 31 400 Aug. 4 1,200

Balance 2,330 Balance 800
Store Equipment H. Service Revenue

Dr. No. 165 Cr. Dr. No. 403 Cr.
Aug. 1 15,000 Aug. 15 825
Aug. 4 1,200 Aug. 15 100
Balance 16,200 Aug. 31 930
Balance 1,855
Accounts Receivables
Dr. Capital No. 301 Cr. Dr. No. Cr.
Aug. 1 18,000 Aug. 15 100 Aug. 17 100
Credit
Balance 18,000 Balance 0
Wages Expense No.

Dr. Furniture No. 161 Cr. Dr. 623 Cr.
Aug. 2 600 Aug. 17 125
Balance 600 Balance 125
Withdrawals No.
Dr. 302 Cr.
Aug. 31 900
Balance 900
‫ تحت الجانب األكبر في‬Balance ‫ يتم وضع الرصيد‬Dr. , Cr. ‫• عند حساب الفرق بين الجانبين الــ‬
.‫القيمة‬

Requirement (3): preparing trial balance
Expressions
Trial Balance
August, 31
Debit Credit
Cash 2,330
Accounts Receivable 0
Furniture 600
Store Equipment 16,200
Note Payable 800
Worthy, Capital 18,000
Worthy, Withdrawal 900
Haircutting Service Revenue 1,855
Wages Expense 125
Rent expense 500
Totals 20,655 20,655
What are the corrective actions if an error found in Trial Balance?

1. Verify that the trial balance accounts are correctly added.
.‫ صحيحة‬Dr. ‫ و‬Cr. ‫تأكد من االضافة الصحيحة لجانبي الـ‬
2. Verify that account balances are accurately entered from the ledger.
‫تأكد أن تم نقل األرصـدة بشكل صحيح من دفتر األستاذ‬
3. See whether a debit (or credit) balance is mistakenly listed in the trial balance
.‫من الممكن عند نقل الرصيد تضعه في الجانب الخطأ بميزان المراجعة‬
4. Re-compute each account balance in the ledger.
.‫تأكد من عملية الجمع والطرح واألرصدة مرة أخرة في دفتر األستاذ‬
5. Verify that each journal entry is properly posted.

.‫تأكد من ترحيل كل عملية من دفتر اليومية الي دفتر االستاذ‬
6. Verify that the original journal entry has equal debits and credits
Cr. ‫ مساوي لجانب الـ‬Dr. ‫ بدفتر اليومة ان جانب الـ‬journal entry ‫تأكد من تسجيل العمليات‬

Expressions
Income Statement
For the month ended August 31
Revenue 1,855
(-) Expenses:
Wages (125)
Rent (500)
(625)
Net Profit (Income) $1,230
Expressions
Statement of Owners’ Equity
For the month ended August 31
Beginning Capital 0
+ Investment 18,000
+ Net Income 1,230
- Withdrawal (900)
= Ending Capital 18,330
Expressions
Balance Sheet
August 31
Assets Liabilities & Owners’

Liabilities
Cash 2,330 Notes Payable 800
Accounts Receivable 0 Owners’ Equity
Furniture 600 J. Worthy, Capital 18,330
Store Equipment 16,200
Total Assets 19,130 Total Liabilities & Owners’ Equity 19,130

Exercise:
Solution

Chapter 03
Adjusting Accounts and Preparing Financial Statements
(At the end of the period(
• Adjusting is required at the last day of each Accounting period (December 31)
)‫يتم عمل التسوية في اخر يوم في الفترة المحاسبية (اخر ديسمبر‬
• Every adjusting entry will include one income statement account and one balance
sheet account. ‫ احدهما من قائمة الدخل واالخر من قائمة المركز المالي‬.‫يؤثر قيد التسوية في حسابين‬
Difference between ACCRUAL BASIS & CASH BASIS:

Accrual Basis ‫أساس االستحقاق‬ Cash Basis ‫االسـاس النقدي‬
Accrual basis accounting uses the Cash basis accounting recognizes
adjusting process to recognize: • Revenues when cash is received
• Revenues when earned • Expenses when cash is paid.
• Expenses when incurred. ً ‫يتم االعتراف بااليرادات عندما يتم تحصيلها نقدا‬
‫يتم اإلعتراف باإليردات عند اكتسابها واالعتراف‬ .ً‫واالعتراف بالمصروفات عند الدفع نقدا‬
.‫بالمصروفات عند حدوثها‬
Accrual basis is accepted by GAAP because Cash basis accounting is not accepted by
it achieves a good matching between GAAP because it doesn’t achieve a good
revenues and expenses generating it. matching between revenues and
expenses generating it.
‫تحقي ـق مقابلةجيــدة بــيي االيــرادات والمصــروفات ال زمــة‬
‫المحاسبة على أساس نقدي ال تتفـق مـع مبـادل المحاسـبة‬
.‫لتحقيق تلك االيرادات‬
. ‫المقبولة‬

Adjusting Entries
Cr. Cr.
1- Asset Expenses 2- Liability
Prepaid …. Dr. …. Payable
3- Liability Revenues 4- Asset

Unearned …. Cr. …. Receivable
Dr. Cr.
❖ Insurance [Insurance Expense = Beginning Bal. – Unexpired (ending)]

Insurance Expense XX
Prepaid Insurance XX
❖ Supplies [Supplies Expense = Beginning Bal. + Purchases – Ending]

Supplies Expense XX
Supplies XX
𝐂𝐨𝐬𝐭−𝐒𝐚𝐥𝐯𝐚𝐠𝐞
❖ Equipment/Machine [Depreciation Expense = ]
𝒍𝒊𝒇𝒆
Depreciation Expense XX
Accumulated Depreciation XX
:ً‫الحظ جيدا‬
‫ لسنة كاملة يتم تطبيق القاعدة كما هي بدون تعديل‬Depreciation ‫• اذا طلب منك حساب‬
:‫• اذا تم شراء اآللة في تاريخ اخر غير بداية السنة يتم حساب االهالك كالتالي‬
Equipment purchased at October 1 → December 31 [3 months]
𝟐𝟐,𝟎𝟎𝟎 𝐜𝐨𝐬𝐭−𝟐,𝟎𝟎𝟎 𝐬𝐚𝐥𝐯𝐚𝐠𝐞

Depreciation Expense = = $4,000 × 3/12 = $1,000 for 3 months only
𝟓 𝒚𝒆𝒂𝒓𝒔

❖ Salaries/Wages/Rent/utilities Expense
Salaries Expense XX
Salaries Payable XX
At payment date ‫عند سداد المرتبات‬

Salaries Payable ‫الجزء المؤجل من الفتره الماضية‬ XX
Salaries Expense ‫الجزء الخاص بالفتره الحالية‬ XX
Cash XX
❖ Unearned Revenue [Cash received in advance] ‫تم استالم قيمة خدمة مقدم‬
Unearned Revenue XX
Revenue XX
❖ Accrued Revenue ‫تقديم خدمات دون استالم المقابل‬

Account Receivable XX
Revenue XX
At Receiving date ‫عند استالم المبلغ‬

Cash XX
Accounts Receivable ‫الجزء المؤجل من الفتره الماضية‬ XX
Revenue ‫الجزء الخاص بالفتره الحالية‬ XX
❖ Interest Expense [Interest Expense = Amount × % × time period]

Interest Expense XX
Interest Payable XX
At payment date
Interest Payable ‫الجزء المؤجل من الفتره الماضية‬ XX
Interest Expense ‫الجزء الخاص بالفتره الحالية‬ XX
Cash XX
❖ Interest Revenue [Interest Revenue = Amount × % × time period]

Interest Receivable XX
Interest Revenue XX
At Receiving date ‫عند استالم المبلغ‬

Cash XX
Interest Receivable ‫الجزء المؤجل من الفتره الماضية‬ XX
Interest Revenue ‫الجزء الخاص بالفتره الحالية‬ XX

Exercise: [Revision on Chapter 3: Adjusting Entries]

The following data related to ABC Firm.
a) Prepare the necessary adjusting entry(s) at December 31, 2011.
1. ABC has an insurance policy of $2,400 for 2 years starting at November 1, 2011.
2. Supplies were $1,000 at January 1, 2011 and the firm purchased additional $3,500
supplies during the year. At December 31, 2011 the cost of supplies on hand was
1,500.
3. Equipment Purchased for $50,000 in June 1, 2011 to be used for 4 years and will have
a salvage (or residual) value of $2,000.
4. The company agreed to provide consulting services for a fixed fee of $6,000 starting
December 27, 2011 for 60 days. On this date the entire payment was made by the
client.
5. An employee earns $35 per day and is paid every two weeks on Friday. Year ended
on Wednesday Dec. 31, 2011. and the last payday was Friday Dec. 26 (Sat. and Sun.
are Off)
6. On December 12, 2011, the firm agreed to provide services for a 60-day fixed fee of
$5,400. All services are to be completed by Jan., 12, 2012. (no cash received)
7. On August 30, 2011, the firm borrowed a $12,000 note bearing 6% annual interest to
be repaid after one year.
b) Using data in adjusting entries complete the adjusted trial balance shown below:
Unadjusted Trial Adjustments Adjusted Trial
Account Title Balance Balance
Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,000
Accounts Receivable 0
Supplies 4,500
Prepaid Insurance 2,400
Equipment 50,000
Accumulated Dep.-Equip. 0
Salaries Payable 0
Interest Payable 0
Unearned Revenue 1,100
Capital 58,400
Withdrawal 100
Revenue 500
Depreciation Expense 0
Salaries Expense 0
Insurance Expense 0
Supplies Expense 0
Interest Expense 0
Totals 60,000 60,000

Requirement (a)
1.
$2,400 ÷ 2 years = $1,200 per year
$1,200 ÷ 12 month = $100 per month
$100 × 2 months =$200 [from Nov. 1 to Dec. 31]
The Adjusting Entry:

Insurance Expense 200
Dec.31, 2011
Prepaid Insurance 200
2.
Beginning Balance 1,000
+ Purchases 3,500
- Ending Balance (1,500)
= Supplies used (Expense) 3,000

Supplies Expense 3,000
Dec.31, 2011
Supplies 3,000
3.
12,000 × 7/12 = $7,000 [from June 1 to December 31]

Depreciation Expense 7,000
Dec.31, 2011
Accumulated Depreciation 7,000

4.
$6,000 ÷ 60 days = $100 per day
$100 × 5 days = $500 [from Dec. 27 to Dec 31]

Unearned Revenue 500
Dec.31, 2011
Revenue 500
5.
Fri Sat Sun Mon Tue Wed
26 27 28 29 30 31
Salaries = $35 per day × 3 days = $105 [Dec. 29, 30, and 31]

Salaries Expense 105
Dec.31, 2011
Salaries Payable 105
6.
$5,400 ÷ 60 days = $90 per day
$90 × 20 days = $1,800 [from Dec. 12 to Dec 31]

Accounts Receivable 1,800
Dec.31, 2011
Revenue 1,800
7.
Interest = 12,000 × 6% × 4/12 = $240 [from Aug 30 to Dec 31]

Interest expense 240
Dec.31, 2011
Interest Payable 240

Requirement (b)
Unadjusted Trial Adjustments Adjusted Trial
Account Title Balance Balance
Dr. Cr. Dr. Cr. Dr. Cr.
Cash 3,000 3,000
Accounts Receivable 0 1,800 (6) 1,800
Supplies 4,500 3,000 (2) 1,500
Prepaid Insurance 2,400 200 (1) 2,200
Equipment 50,000 50,000
Accumulated Dep.-Equip. 0 7,000 (3) 7,000
Salaries Payable 0 105 (5) 105
Interest Payable 0 240 (7) 240
Unearned Revenue 1,100 500 (4) 600
Capital 58,400 58,400
Withdrawal 100 100
500 (4)
Revenue 500 2,800
1,800 (6)
Depreciation Expense 0 7,000 (3) 7,000
Salaries Expense 0 105 (5) 105
Insurance Expense 0 200 (1) 200
Supplies Expense 0 3,000 (2) 3,000
Interest Expense 0 240 (7) 240
Totals 60,000 60,000 12,845 12,845 69,145 69,145
Very Important:
Dr. + Dr. = Dr.
Cr. + Cr. = Cr.
Dr. – Cr. = ‫الفرق دائما ُ مع الجانب األكبر‬

Chapter 04
Completing the Accounting Cycle
Temporary and Permanent Accounts:
Temporary (nominal) accounts Permanent (real) accounts
(‫الحسابات المؤقتة (االسمية‬ (‫الحسابات الدائمة (الحقيقية‬
• It accumulates data related to • It report on activities related to
one accounting period. one or more future accounting periods.
‫تغطي فترة محاسبية واحدة فقط‬ ‫تغطي اكثر من فترة محاسبية مستقبلية‬
• Temporary Accounts are: • Permanent Accounts are:
o Revenues o Assets
o Expenses o Liabilities
o Income Summary
o Capital
o Withdrawals
They are temporary because the accounts They carry their ending balances into the
are opened at the beginning of a period, used next period
to record transactions and events for that
period, and then closed at the end of the
period. ‫يتم ترحيل الرصيد الموجود بتلك الحسابات من الفترة‬
‫يتم فتحها في بداية الفترة واقفالها في نهاية نفس الفترة‬ ‫المحاسبية الحالية الي الفترة التالية‬
The closing process applies only to temporary accounts
The closing process is an important step at the end of an accounting period after
financial statements have been completed.
The purpose of the closing process:
First, Reset revenue, expense, and withdrawals account balances to zero at the
end of each period.
Second, it helps in summarizing a period’s revenues and expenses.
Income Summary:
- Is a temporary account (only used for the closing process)
- Contains a credit for the sum of all revenues (and gains)
- Contains debit for the sum of all expenses (and losses)
- Its balance equals net income or net loss
- It is transferred to the capital account.
‫ حساب مؤقت يستخدم فقط في عملية اقفال الحسابات في أخر الفترة المحاسبية يشتمل علي إجمالي‬:‫ملخص الدخل‬
‫ رصيد هذا الحساب يساوي صافي الدخل أو‬.Dr. ‫ وإجمالي المصروفات في الجانب الـ‬Cr. ‫اإليرادات في الجانب الـ‬
.‫الخسارة ومن ثم يتم إقفال هذا الحساب الحقا في حساب رأس المال‬

Example:
AMS Company has the following data for the year ended December 31, 2019:
Revenues $100,000
Expenses $68,000
Drawings $14,000
Required:
Prepare Closing entries on 31/12/2019 to close net income and Owners’
drawings.
Solution
Date Explanation Debit Credit
Revenues 100,000
Dec.31, 2019 Income Summary
100,000
To close revenues in income summary
Income Summary 68,000
Dec.31, 2019 Expenses
68,000
To close Expenses in income summary
Dec.31, 2019 AMS, Capital
32,000
To transfer net income to Capital account
AMS, Capital 14,000
Dec.31, 2019 AMS, Withdrawals
14,000
To close Drawing Accounts into Capital account

Exercise:
Solution
(1)
Repair Services Revenue 36,000

Dec.31, 2014
Depreciation Expense—Equipment 2,000
Salaries Expense 21,000
Dec.31, 2014
Insurance Expense 1,500
Rent Expense 2,400
Supplies Expense 1,200
Dec.31, 2014
R. Showers, Capital 7,900
R. Showers, Capital 6,000
Dec.31, 2014
R. Showers, Withdrawals 6,000

(2) Prepare Post-Closing Trial Balance
Exercise: (H.W)
The summary amounts below appear in the Income Statement and Balance Sheet
columns of a company's December 31 work sheet.
1- Prepare the necessary closing entries.
2- Compute the balance of capital after closing entries.

Exercise: (H.W)
The summary amounts below appear in the Income Statement and Balance Sheet
columns of a company's December 31 work sheet.
1- Prepare the necessary closing entries.
2- Compute the balance of capital after closing entries.
Solution
(1)
Revenue 19,500
Dec.31, 2014
Dec.31, 2014 Salaries Expense 11,250
Other Operating Expense 5,250
Dec.31, 2014
Kate Smith, Capital 3,000
Kate Smith, Capital 1,500
Dec.31, 2014
Kate Smith, Withdrawal 1,500
2- Capital Balance after Closing
7,500 ‫ من اصل التمرين‬+3,000 Net Income – 1,500 Withdrawal = $9,000

Classified Balance Sheet

‫قائمة المركز المالي المصنفة‬
Unclassified balance sheet is one whose items are broadly grouped into assets,
liabilities, and equity.
‫ يتم تجميع عناصرها في شكل األصول واإللتزامات وحقوق المالك بدون تفاصيل‬:‫قائمة المركز المالي غير المصنفة‬
A classified balance sheet organizes assets and liabilities into important subgroups
that provide more information to decision makers.
‫ بيتم تصنيف االصول وااللتزامات فيها إلي مجموعات فرعية‬:‫قائمة المركز المالي المصنفة‬
Items of a classified Balance Sheet: ‫عناصر قائمة المركز المالي المصنفة‬

Assets Liabilities and Equity
• Current Assets ‫اصول متداولة‬ • Liabilities
• Noncurrent Assets ‫اصول غير متداولة‬ - Current Liabilities ‫التزامات متداولة‬
- Long-term investments‫استثمارت طويلة االجل‬ - Long-term Liabilities‫التزامات طويلة االجل‬
- Property, Plant & Equipment ‫اصول ثابتة‬ • Equity
- Intangible Assets ‫اصول غير ملموسة‬
Assets
• Current assets:
Cash and other resources that are expected to be sold, collected, or used within
one year or the company’s operating cycle, whichever is longer.
Operating cycle is the average time that it takes to purchase inventory, sell it on
account, and then collect cash from customers.
Examples: ‫الترتيب مهم‬
- Cash
- Short-term investments
- Accounts receivable
- Short-term notes receivable
- Goods for sale (merchandise or inventory)
- Prepaid expenses.
Note:
Current assets must be arranged from the highest to the lowest liquidity. ‫سيولة‬
• Long-Term Investments (noncurrent) investments:

Notes receivable and investments in stocks and bonds are long-term assets
when they are expected to be held for more than the longer of one year or the
operating cycle.
Note: long-term assets such as land or buildings that is not currently being used in
operating activities are classified as long-term investments.

• Property, Plant & Equipment: ‫اصول ثابتة‬

Tangible assets are both long-lived and used in operations.
Examples
- Equipment
- Machinery
- Buildings
- Land
• Intangible assets: ‫اصول غير ملموسة‬

Long-term resources that benefit business operations, usually lack physical
substance, and have uncertain benefits.
Examples
- Patent
- Trademark
- Copyright
- Franchises
- Goodwill
Liabilities:
• Current liabilities:
Obligations due to be paid or settled within one year or the operating cycle,
whichever is longer. They are usually settled by paying out current assets such
as cash.
Examples:
- Accounts payable
- Notes payable
- Wages payable
- Taxes payable
- Interest payable
- Unearned revenues
• Long-term liabilities:
Obligations not due within one year or the operating cycle, whichever is longer.
Examples:
- Notes payable
- Mortgages payable
- Bonds payable
Equity is the owner’s claim on assets.

Exercise: The following information is available for Sergio Company for the year
ended December 31, 2016:
Accounts payable $ 4,300
Accumulated depreciation-equipment 5,000
Owner’s capital 8,300
Intangible assets 2,500
Notes payable (due in 5 years) 6,500
Accounts receivable 1,900
Cash 2,800
Short-term investments 2,500
Equipment 8,700
Long-term investments 5,700
Instructions
Use the above information to prepare a classified balance sheet for the year ended
December 31, 2016.
Solution
SERGIO COMPANY
Balance Sheet
December 31, 2016
Assets
Current assets
Cash $2,800
Short-term investments (notes receivables) 2,500
Accounts receivable 1,900
Total current assets $7,200
Investments
Long-term investments 5,700
Property, plant, and equipment
Equipment 8,700
Less: Accumulated depreciation-equipment 5,000 3,700
Intangible assets 2,500
Total assets $19,100
Liabilities and Owner’s Equity

Current liabilities
Accounts payable $4,300
Long-term liabilities
Notes payable 6,500
Total liabilities $10,800
Owner’s equity
Owner’s capital 8,300
Total liabilities and owner’s equity $19,100

Accounting Cycle: ‫الدورة المحاسبية‬
Correcting Entries—An Avoidable Step

◆ Unnecessary if accounting records are free of errors.
◆ Made whenever an error is discovered.
◆ Must be posted before closing entries.
Instead of preparing a correcting entry, it is possible to reverse the incorrect entry and
then prepare the correct entry.
CASE 1:
On May 10, Mercato Co. journalized and posted a $50 cash collection on account
from a customer as a debit to Cash $50 and a credit to Service Revenue $50. The
company discovered the error on May 20, when the customer paid the remaining
balance in full.

CASE 2:
On May 18, Mercato purchased on account equipment costing $450. The

transaction was journalized and posted as a debit to Equipment $45 and a credit
to Accounts Payable $45. The error was discovered on June 3.
Exercise: (Home work)

The following items were taken from the financial statements of Rivera Company.
(All dollars are in thousands.)
Mortgage payable $ 2,340 Accumulated depreciation 3,560

Prepaid expenses 980 Accounts payable 1,555
Property, plant, and equipment 11,500 Notes payable due after 2017 1,200
Long-term investments 1,300 Owner’s capital 14,026
Short-term investments 3,690 Accounts receivable 1,696
Notes payable due in 2017 1,000 Inventories 1,765
Cash 2,750
Instructions
Prepare a classified balance sheet in good form as of December 31, 2016.
[Check: Total Assets = $20,121]

Accounting 1-4

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Accounting 1-4

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Financial Accounting 2022

Fundamentals of Financial Accounting

Examples: Managers ‫مدير‬ Sales Staff ‫مسئول مبيعات‬

Examples: Lenders ‫الدائنين‬ Environment ‫البيئة‬

Ethics: ‫اخالقيات المهنة‬

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Generally Accepted Accounting Principles: ‫المبادئ المحاسبية المقبولة قبول عام‬

Setting Accounting Principles: ‫ما الجهة التي تحدد االسس المحاسبية‬

The Securities and Exchange Commission (SEC): ‫هيئة سوق المال‬

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Accounting Principles: ‫المبادئ المحاسبية‬

• Expense Recognition Principle: ‫االعتراف بالمصروفات‬

3- Matching Principle: ‫مقابلة االيرادات بالمصروفات‬

4- Full Disclosure Principle: ‫االفصاح عن المعلومات‬

Accounting Assumptions: ‫االفتراضات المحاسبية‬

Forms of Business Entities: ‫انواع منشآت األعمال‬

Note: Owners of a corporation are called shareholders (or stockholders). Shareholders

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Assets = Liabilities + Equity

• Revenues increase Owner’s equity (+O.E) such as:

• Expenses Decrease Owner’s equity (- O.E) such as:

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Analyzing transactions using Accounting Equation

Transaction 2: Purchase Supplies for Cash

Transaction 3: Purchase Equipment for Cash

Transaction 4: Purchase Supplies on Credit

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Transaction 5: Provide Services for Cash

Transaction 6 and 7: Payment of Expenses in Cash

Transaction 8: Provided Services on Account

Transaction 11: Withdrawal of Cash

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Summary of Transactions: ‫ملخص للعمليات‬

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Financial Statements: ‫القوائم المالية‬

2. Statement of Owner’s Equity: ‫قائمة التغير في حقوق المالك‬

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4. Statement of Cash Flows: ‫قائمة التدفقات النقدية‬

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Main Steps at Accounting Cycle:

The Account and its Analysis:

Double-Entry Accounting: ‫القيد المزدوج‬

Note: Debits and Credits don’t mean increase or decrease.

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Normal Balance of Accounts:

❖ Second: Credit Accounts:

Double-Entry and the Accounting Equation:

Normal Balance Debit (Dr) Normal Balance Credit (Cr)

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:Transaction ‫شرح المسـألة لكل عملية‬

‫) زيادة في النقدية والمعدات نتيجة االستثمار بالشركة يؤدي إلي‬a

‫) شراء أثاث للشركة وتم السداد نقدا ً يؤدي إلي‬b

‫) سداد إيجـار وتم السداد نقدا ويؤدي الي‬c

‫) استالم نقدية بسبب تقديم خدمات وتحقيق إيرادات‬e

‫) تقديم خدمات علي الحساب وتحقيق إيرادات‬f

‫) استالم شيك بقيمة الخدمات التي تم تقديمها علي الحساب سابقا‬g

Transaction (e) ‫) تماما ً مثل‬i

Note Payable ‫) سداد جزء من الكمبيالة‬j

‫) مسحوبات نقدية لصاحب الشركة لالستخدام الشخصي‬k

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Posting Transactions: ‫ترحيل العمليات‬

Trial Balance: ‫ميزان المراجعة‬