Accounting Principles Course - First Section PDF

Faculty of Commerce and Business Administration – BIS Accounting Principles Course First Section Made by TA: Mariam Mostafa  ASSETS : Owned or controlled by the entity Having expected future benefits. ( cash , supplies , equipment , A/R ,...

Faculty of Commerce and Business Administration – BIS Accounting Principles Course First Section Made by TA: Mariam Mostafa  ASSETS : Owned or controlled by the entity Having expected future benefits. ( cash , supplies , equipment , A/R , land , building). LIABILITIES: Include a responsibility or current claim to other entity ( account payable , notes payable , loan payable , salaries payable). OWNER’S EQUITY : Is the remaining of assets after subtracting all liabilities The Accounting Equation : ASSETS = LAIBILITIES + OWNER’S EQUITY  Problems: Problem 2-1 The following transactions occurred at Yahia’s Proprietorship during the first month of operations. Required: Determine the effect of each of the following activities on total assets/total liabilities, and owner’s equit Use +, - and 0  Transactions Effect on Assets Effect on Liabilities Effect on Owner’s Equity The owner invested cash as capital Increase Increase Purchased land with building for $150,000 Increase ( land by $150,000) Increase Paid $50,000 cash and signed a note for the remainder Decrease ( cash by $50,000) (N/P BY $100,000) The final effect is increase by ($100,000) Purchased a space to be used as a warehouse Increase ( space) Decrease ( cash) By the same amount So the final effect on total assets ( NO- EFFECT) Sold part of the land at cost on credit Decrease ( land) Increase ( A/R) By same amount the final effect on total assets (NO- EFFECT) Obtained a loan from the bank in cash Increase Increase Purchased office supplies on credit Increase Increase Payment of some liabilities Decrease Decrease Collection of the price of land Increase ( cash ) Decrease ( A/R) the final effect on total assets (NO- EFFECT) Payment of the note payable Decrease Decrease Withdrawal of cash from the company for personal Decrease Decrease use  Problem 2-3 The following transactions Occurred in a new business: 1. The owner deposited $75,000 cash as capital. 2. Purchased a small office building for $ 58,000 for the land and$65,000 for the building. The company paid $43,000 in cash and signed a note payable for the remaining balance. 3. Borrowed $15,000 from the bank and signed a note payable after two months. 4. Purchased a copy machine and office supplies for $19,000, paid $9,000 in cash and signed a note for the remaining amount. 5. Paid the amount due for the copy machine. 6. Sold some of the office supplies at $3,000 cost for cash.  Required: 1. Show the effect of these transactions on the accounting equation. 2. Prepare the statement of financial position after these transactions.  1. The owner deposited $75,000 cash as capital. 2. Purchased a small office building for $ 58,000 for the land and$65,000 for the building. The company paid $43,000 in cash and signed a note payable for the remaining balance. 3. Borrowed $15,000 from the bank and signed a note payable after two months. 4. Purchased a copy machine and office supplies for $19,000, paid $9,000 in cash and signed a note for the remaining amount. 5. Paid the amount due for the copy machine. 6.Sold some of the office supplies at $3,000 cost for cash. ASSETS LIABILITIES Owner's equity N0. Cash A/R Land Buildings Machine and A/P N/P O/E supplies 1 2 3 4 5 6 Total 1. The owner deposited $75,000 cash as capital. 2. Purchased a small office building for $ 58,000 for the land and$65,000 for the building. The company paid $43,000 in cash and signed a note payable for the remaining balance. Calculations : office building = $58,000+ $65,000 = $123,000 cash paid = $43,000 residual amount as a N/P = $123,000 - $43,000 = $ 80,000 3. Borrowed $15,000 from the bank and signed a note payable after two months. 4. Purchased a copy machine and office supplies for $19,000, paid $9,000 in cash and signed a note for the remaining amount. amount of N/P = $ 19,000 - $ 9,000 = $10,000  5. Paid the amount due for the copy machine. ASSETS LIABILITIES Owner's equity N0. Cash A/R Land Buildings Machine A/P N/P O/E and supplies 1 + $75,000 +$75,000 2 - $43,000 + $58,000 +$65,000 + $80,000 3 + $15,000 + $15,000 4 - $9,000 + $19,000 + $10,000 5 - $10,000 - $10,000 6 + $3,000 - $3,000 Total $31,000 0 $58,000 $65,000 $16,000 0 $95,000 $75,000 Assets = $31,000 +0+$58,000+$65,000+$16,000 = $170,000 Liabilities and O/E = $95,000+ $75,000= prepare the statement of financial position after these transactions. ANSWER : Statement of financial position Assets Balance Liabilities and Balance owner's equity Cash $31,000 A/P 0 A/R 0 N/P $95,000 land $58,000 Total liabilities $95,000 Buildings $65,000 O/E $75,000 Machine and $16,000 Total owner's $75,000 supplies equity Total $170,000 Total ( $95,000+ $75,000) = $170,000 Choose the best answer for each of the following items: The following information is for items 1-5. The financial records of Rihan shop show the following items: - Accounts Receivable $60,000 - Accounts payable $24,000 - Land $360,000 - Notes payable $280,000 - Equipment $180,000 - Rihan's capital ? - Buildings $250,000 - cash? 1- If Rihan ‘s capital is $600,000, cash is: ( $714,000 - $304,000 - $54,000 – 174,000) ANSWER: ( $54,000) ILLUSTRATION: ASSETS = LIABILITIES + O/E A/R + LAND + EQUIPMENT + BUILDING + CASH = A/P + N/P + CAPITAL $60,000 + $360,000 + $180,000 + $ 250,000 + CASH = $24,000 + $280,000 + $600,000 CASH = $904,000 - $850,000 = $54,000 2. If Rihan’s capital is $700,000, total asset of the shop ( $1,004,000 - $154,000 - $1,334,000 - $1,158,000) ANSWER : $1,004,000 ASSETS = LIABILITIES + O/E A/R + LAND + EQUIPMENT + BUILDING + CASH = A/P + N/P + CAPITAL $60,000 + $360,000 + $180,000 + $ 250,000 + CASH = $24,000 + $280,000 + $700,000 cash = $1,004,000 - $850,000 = $154,000 total assets = $850,000 + $154,000 = $1,004,000 The financial records of Rihan shop show the following items: - Accounts Receivable $60,000 - Accounts payable $24,000 - Land $360,000 - Notes payable $280,000 - Equipment $180,000 - Rihan's capital ? - Buildings $250,000 - cash? 3. If cash is $104,000, Rihan capital is: ( negative number - $650,000 - $1,258,000 - $104,000) (ANSWER: $650,000) ASSETS = LIABILITIES + O/E A/R + LAND + EQUIPMENT + BUILDING + CASH = A/P + N/P + CAPITAL $60,000 + $360,000 + $180,000 + $ 250,000 + $104,000 = $24,000 + $280,000 + CAPITAL capital = $650,000 4. If cash is $34,000, the owner’s equity is: ( $884,000 - $1,646,000 - $614,000 - $580,000 ) ANSWER : $580,000 ASSETS = LIABILITIES + O/E A/R + LAND + EQUIPMENT + BUILDING + CASH = A/P + N/P + CAPITAL $60,000 + $360,000 + $180,000 + $ 250,000 + $34,000 = $24,000 + $280,000 + CAPITAL CAPITAL = $884,000 - $304,000 = $580,000 5. If cash is $54,000, total assets are: ( $600,000 - $1,334,000 - $904,000 - $654,000 ) ANSWER : $904,000 TOTAL ASSETS = A/R + LAND + EQUIPMENT + BUILDING + CASH $60,000 + $360,000 + $180,000 + $ 250,000 + $54,000 = $904,000  6. At the end of the first year of operations, Temraz company for imports and exports has total assets of $270,000, and owner’s equity of $180,000: A) Temraz invested $180,000 at the beginning of activities. B) This company is profitable. C) Total liabilities are $450,000. D) Total liabilities are $90,000. ANSWER : Total liabilities are $90,000. ASSETS = LIABILITIES + OWNER,S EQUITY $270,000 = liabilities + $180,000 Liabilities = $270,000 - $180,000 Liabilities = $90,000  7.Assets of Younis Company increased by $312,000, also its liabilities increased by$270,000. Owner’s equity: A) Decreased by $42,000 B) Decreased by $582,000 C) Increased by $42,000 D) Increased by $582,000 ANSWER: Increased by $42,000 ASSETS = LIABILITIES + O/E INC $312,000 = INC $270,000 + O/E O/E = $312,000 - $270,000 = $42,000 INC  8. If a note is signed for $10,000 and cash of $32,000 is paid to purchase some office equipment to be used in the company: A) Total assets increased. B) Total liabilities decreased. C) Total assets decreased. D) Owner’s equity increased ANSWER: A) Total assets increased. Total amount of equipment = N/P + cash = $10,000 + $32,000 = $ 42,000 Inc $ 42,000 INC Total Assets = (-) $ 32,000 DEC $ 10,000 INC  9. At the end of last year Owner’s equity was $348,000. During last year assets increased by $140,000, liabilities increased by140,000. What was the owner’s equity at the beginning of last year: A) $348,000 B) $396,000 C) $580,000 D) $116,000 ANSWER : $348,000 ASSETS = LIABILITIES + O/E + 140,000 = + 140,000 + O/E Change in O/E = 0 So Beginning O/E = Ending O/E = $348,000  10. If assets increased by $145,000. Liabilities decreased by $35,000. Owner’s equity at the end of the year was $395,000. What was owner’s equity at the beginning of the year? A) $285,000 B) $215,000 C) $575,000 D) $505,000 ANSWER : $215,000 1- Assets = Liabilities + O/E + $145,000 = - $35,000 + O/E 2- Change in O/E = $180,000 Beginning O/E xx change in O/E + $180,000 = Ending O/E = $ 395,000 Then ending O/E = $395,000 - $145,000 = $215,000