FIRST YEAR ACCOUNTING PRINCIPLES AMR YOUSSEF

PART (6)

ACCOUNTING PRINCIPLES
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 R E M E M B E R : Three Activities of Accounting:

1- Identify 2- Record 3- Communicate Transactions.

3- Communicate
 R E M E M B E R : The main objective of Accounting is to provide useful information
by preparing financial statements to the users.

FINANCIAL STATEMENTS
Accountants should provide Financial Reports to users after end of each Accounting Period.
(monthly, quarterly, annually)
1- Income Statement
2- Owner’s Equity Statement
3- Statement of Financial Position “Balance Sheet “
4- Cash Flow Statement

 Financial Statements must be prepared according to Accounting Standards.

- TIME PERIOD ASSUMPTION :

refers , that the life of a company must be divided into time periods called “Accounting
Period” , such as ( Monthly , Quarterly , Annually ).

- FULL DISCLOSURE PRINCIPLE :

A company is required to report the details behind financial statements , that will be very
important to users decision.
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(Profit & Loss Statement)

The Income Statement is the report that measures the success of
company (Profit or Loss) operations for a given period of time.

= NET INCOME/LOSS
All Revenues (-) All Expenses

Company Name
Income Statement
for the year ended at Dec,31,2018

Revenues
Service Revenue xxx
Sales Revenue xxx
Rent Revenue xxx
Interest Revenue xxx
etc … xxx
Total Revenues xxx
(-)Expenses
xxx
- Salaries Expenses
xxx
- Rent Expenses
xxx
- Utilities Expenses
xxx
- Interest Expenses
xxx
- Advertising Expenses
xxx
- etc …
Total Expenses (xxx)
NET INCOME OR LOSS xxx
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EX1: The Trial Balance of “AY Company” shows the following information on
Dec 31,2018 “Assuming The Company is working Annually" .

Cash 50,000 Drawings 3,000

NP 20,000 Service Revenue 75,000
Capital 80,000 Rent Revenue 7,000
Salaries Expenses 10,000 Rent Expense 13,000
AR 5,000 Utilities Expense 4,000
Interest Expense 20,000 Interest Revenue 8,000
REQ: Prepare Income Statement for AY company for Dec 31,2018

AY Company
Income Statement
for the year ended at Dec,31,2018

Revenues
Service Revenue 75,000
Rent Revenue 7,000
Interest Revenue 8,000
Total Revenues 90,000
(-)Expenses
10,000
- Salaries Expenses 13,000
- Rent Expenses 4,000
- Utilities Expenses 20,000
- Interest Expenses
Total Expenses (47,000)
NET INCOME 43,000
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2- Owner’s Equity Statement

(Change in Equity Statement)
The Owner’s Equity Statment shows the changes in the capital
account due to additional investments, withdrawals, and net income
or net loss.

Equity Ending Balance =

Beg. Capital + NET INCOME - Drawings
Company Name
Owner’s Equity Statement
for the year ended at Dec,31,2018

Beginning Capital xxx

(+) Additional Investment xxx

(+) Net Income xxx

(-) Drawings (xxx)

Equity Ending Balance xxx

EX2: The Trial Balance of “AY Company” shows the following information on
Dec 31,2018 “Assuming The Company is working Annually" .

Capital at 1 Jan 2018 47,000 Net Income 43,000

Additional Investment 35,000 Drawings 3,000

REQ: Prepare Owner’s Equity Statement for AY company for Dec 31,2018

AY Company
Owner’s Equity Statement
for the year ended at Dec,31,2018
Beginning Capital 47,000
(+) Additional Investment 35,000
(+) Net Income 43,000
(-) Drawings (3,000)
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Equity Ending Balance 122,000

3- Balance Sheet
(Statement of Financial Posistion)
The Balance Sheet is a financial statement that summarizes a
company's assets, liabilities and owner’s equity at a specific point in
time.

Balance Sheet =
Assets = Liabilities + Owner’s Equity

EX3: The Trial Balance of “AY Company” shows the following information on
Dec 31,2018 “Assuming The Company is working Annually" .

Capital (O.E) 47,000 Cash 50,000

AR 5,000 Unearned Revenue 20,000
Supplies 7,000 AP 23,000
NP (2021) 103,000 Car 13,000
Equipment 29,000 Prepaid Insurance 12,000
Land 50,000 Car (Market Value) 40,000
Building 34,000 Salaries Payable 7,000
REQ: Prepare Balance Sheet for AY company at Dec 31,2018.

Company Name
Balance Sheet
at Dec 31,2018

ASSETS LIABILITIES
Short-Term (current) Assets: Short-Term Liabilites:
- Cash 50,000 - Salaries Payable 7,000
- Supplies 7,000 - Unearned Revenue 20,000
- Prepaid Expenses 12,000 - AP 23,000
- AR 5,000
TOTAL SHORT-TERM 74,000 TOTAL SHORT-TERM 50,000
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ASSETS= LIABILITES=
Long-Term (Fixed) Assets: Long-Term Liabilites:
- Land 50,000 - NP (2021) 103,000
- Building 34,000
- Equipment 29,000
- Car 13,000

TOTAL LONG TERM ASSETS= 126,000 TOTAL LONG TERM 103,000

LIABILITES=
OWNER’S 47,000
EQUITY
TOTAL ASSETS 200,000 TOTAL LIAB & OE
200,000

EX5: The T-accounts below summarize the ledger of Simon Company at the end of the first month of
operations.

REQ:
(a) Prepare the complete general journal from which the postings to Cash were made.
(b) Prepare a trial balance at April 30, 2018.

Date Account Name Ref. Dr. Cr.

1/4 Cash 15,000
Capital 15,000
12/4 Cash 900
Service Revenue 900
15/4 Salaries Expense 600
Cash 600
25/4 AP 1,500
Cash 1,500
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29/4 Cash 400

AR 400
30/4 Cash 1,000
Unearned Revenue 1,000
(a) – Journalizing cash:

(b) – Determine The Ending Balances First.

Trial Balance
At April, 30,2018
Account Name Dr. Cr.
Cash 15,200
AR 2,800
Supplies 1,800
AP 300
Unearned Revenue 1,000
Capital 15,000
Service Revenue 4,100
Salaries Expense 600
TOTAL 20,400 20,400