Accounting 1 - YouTube PDF

 Introduction Accounting information about revenues, expenses, resources, and obligations is important for individuals and organizations. Accounting is considered one of the major sources of financial information about business activities....

 Introduction Accounting information about revenues, expenses, resources, and obligations is important for individuals and organizations. Accounting is considered one of the major sources of financial information about business activities. It is the most important source of financial information. Accounting is generally called the Language of Business because it is used to describe all business activities for organizations. Accounting consists of three basic activities—It 1. Identifies ‫تحديد‬ 2. Records ‫تسجيل‬ 3. Communicates ‫تواصل‬ the economic events of an organization to interested users. Sales: 200 EGP COGS: 100 EGP Rent: 30 EGP Salary: 20 EGP Electricity: 10 EGP 100 EGP Accountant - How much profit did he make? , Should he expand? Income Statement – ‫قائمة الدخل‬ - Accounting Can answer. How?? Accounting is The language of business Revenue - ‫ايرادات‬ 200 EGP 100 EGP Identifies ‫تحديد‬ Records ‫تسجيل‬ Communicates ‫تواصل‬ 30 EGP Expenses - ‫مصروفات‬ 20 EGP 10 EGP Net Income - ‫صافي ربح‬ 40 EGP  Accounting is the process of identifying, recording, summarizing, and reporting economic information about an economic entity to decision-makers. a. Accounting is the process , this indicates that accounting has many steps and procedures. Without such steps, we cannot achieve the accounting objectives of providing help to decision-makers. b. Accounting identifying information that should be included in the accounting records. As was stated before, accounting is concerned only with quantitative and financial information. c. Accounting recording this information in different accounting records for future reference and to utilize it in preparing the accounting reports needed for decision-makers. d. Accounting summarizing the information. Information from different activities should be summarized before reporting to decision-makers. This summarization provides a concise picture of different activities without overloading them with irrelevant information. e. Accountants prepare the reporting in the form of financial statements to provide information about the results of activities, resources and obligations towards creditors and owners, and cash resources and uses. These reports are the final output of the accounting system that provides the necessary information for decision-makers.  Thus, this second definition deals with accounting as an information system with data resulting from different activities represent inputs to the system to be processed in different processes of recording, classifications, summarization and finally preparing the financial statements which is the final output of the system. These reports are communicated to decision makers to help them in making sound economic decisions regarding the entity.  Thus, this second definition deals with accounting as an information system with data resulting from different activities represent inputs to the system to be processed in different processes of recording, classifications, summarization and finally preparing the financial statements which is the final output of the system. These reports are communicated to decision makers to help them in making sound economic decisions regarding the entity.  Users of accounting information Internal users External users Management and employees, Current and potential investors, lenders, creditors, and banks. served by management accounting served by financial accounting Accounting Reports Internal Reports External Reports Which are prepared to be used by users in the firm Accountants prepare a set of accounting reports mainly (management) to plan, direct, and control daily for external users. activities. These reports are called general-purpose financial These reports Include budgets, cost statements, and statements to satisfy the common needs for these related reports for measuring and controlling the cost of parties. products or services. 1. Statement of financial position (Balance Sheet) 2. Statement of income or the income statement 3. Statement of owner’s equity 4. Statement of cash flows  Generally Accepted Accounting Principles (GAAP): Generally Accepted Accounting principles are rules, methods, procedures, concepts, assumptions, and principles used to prepare financial statements and that are accepted by many accountants. These principles compose the general framework to determine the information that should be included in the financial statements now they are presented and disclosed. These principles are generally accepted because they are in conformity with the objectives of financial reporting, rules, and standards issued by accounting organizations. It should be clear that there is no one complete list of these principles, but these principles are subject to change depending on the surrounding circumstances.  Fields of accounting Financial accounting Managerial Tax accounting Governmental International accounting accounting accounting  Forms of Business Ownership Proprietorship ‫منشاة فردية‬ Partnership ‫شركة اشخاص‬ Corporation ‫شركات مساهمة‬ Owned by one person Owned by two or more persons Ownership divided into shares of stock Owner is often manager/operator Often retail and service type Separate legal entity organized businesses under state corporation law Owner receives any profits, suffers Generally unlimited personal Limited liability any losses, and is personally liable liability for all debts Partnership agreement  Thanks! Do you have any questions? Credits:[email protected] This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik. Chapter2: The Accounting Equation and The Debit and Credit Rule Assets = Liabilities + Owner’s equity  Chapter2: The Accounting Equation and The Debit and Credit Rule (this video) 1) Explain the building blocks of accounting: principles, and assumptions. 2) State the accounting equation, and define its components. PART 1 3) Analyze the effects of business transactions on the accounting equation. 4) Describe the basic financial statements and how they are prepared. 5) Describe how accounts, debits, and credits are used to record business transactions. 6) Indicate how a journal is used in the recording process. 7) Explain how a ledger and posting help in the recording process. 8) Prepare a trial balance. Financial Accounting 1. Statement of financial position (Balance Sheet) 2. Statement of income or the income statement 3. Statement of owner’s equity 4. Statement of cash flows  1- Assets: ‫االصول‬ In simple terms, assets represent what a company owns. Assets are economic resources owned by a business that have a measurable value and can be used to generate future benefits. Assets include Cash, Land, Buildings, Equipment, Inventory, Accounts Receivable, Notes Receivable, Copyrights, and franchising..‫ تمثل األصول ما تمتلكه الشركة‬،‫ببساطة‬.‫األصول هي الموارد االقتصادية التي تملكها الشركة والتي لها قيمة قابلة للقياس ويمكن استخدامها لتحقيق فوائد مستقبلية‬.‫ واالمتيازات‬،‫ وحقوق الطبع والنشر‬،‫ والسندات القابلة للتحصيل‬،‫ والمستحقات القابلة للتحصيل‬،‫ والمخزون‬،‫ والمعدات‬،‫ والمباني‬،‫ واألراضي‬،‫تشمل األصول النقدية‬ 2- Liabilities: ‫االلتزامات‬ In simple terms, liabilities represent what a company owes. Liabilities are obligations or debts that a company owes to external parties, Liabilities are amounts that the company is required to repay or fulfill in the future. such as loans, accounts payable, and accrued expenses, Notes payable, Expenses payable..‫ تمثل االلتزامات ما تدين به الشركة‬،‫ببساطة‬ ‫ مثل القروض‬.‫ االلتزامات هي المبالغ التي يجب على الشركة سدادها أو تنفيذها في المستقبل‬،‫االلتزامات أو ديون يدين بها الشركة ألطراف خارجية‬ 3- Owner's Equity or Capital: ‫حقوق المالك او رأس المال‬ In simple terms, equity represents the ownership interest in the company. Equity, also known as owner's equity or shareholders' equity, represents the residual interest in the assets of a company after deducting its liabilities. It can be calculated as: Equity = Assets – Liabilities.‫ تمثل حقوق الملكية (المال الخاص بالمالكين) في الشركة‬،‫ ببساطة‬.‫ وتمثل االهتمام المتبقي في أصول الشركة بعد خصم المسؤوليات عنها‬،‫ تُعرف حقوق الملكية أيضًا باسم حقوق المالك أو حقوق المساهمين‬  Assets Liabilities Owner's Equity Cash: $10,000 Bank loan: $5,000 Equity = Assets – Liabilities equipment: $20,000 Accounts payable: $5,000 30,000 – 10,000 = $20,000 Total assets = $30,000 Total Liab. = $10,000 Total Equity = $20,000 $30,000 $10,000 $20,000  Accounting is the process of identifying, recording, summarizing, and reporting economic information about an economic entity to decision-makers. Transactions - ‫معامالت‬ Transactions are a business’s economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Are the following events recorded in the accounting records? 1. Purchase computer. Yes 2. Discuss product design with potential customer. No 3. Pay rent. Yes Each transaction has a dual effect on the accounting equation.  ‫‪Each transaction has a dual effect on the accounting equation.‬‬ ‫تخيل المعادلة المحاسبية كميزان ذو طرفين‪ :‬الجانب األيسر له أصول‪ ،‬والجانب األيمن له التزامات وحقوق ملكية‪.‬‬ ‫ ‬ ‫عندما يحدث شيء جيد‪ ،‬مثل حصول الشركة على المزيد من المال (زيادة األصول)‪ ،‬فهذا يشبه إضافة وزن إلى الجانب األيسر من الميزان‪.‬واآلن‪ ،‬للحفاظ‬ ‫ ‬ ‫على توازن الميزان‪ ،‬يجب أن يتغير شيء ما على الجانب األيمن‪.‬يمكن أن يكون بطريقتين‬ ‫‪:‬إذا اقترضت الشركة أمواالً (ازدادت االلتزامات)‪ ،‬فإن ذلك يشبه إضافة وزن إلى الجانب األيمن لموازنة الميزان‪.‬أو‬ ‫ ‬ ‫ضا وزنًا إلى الجانب األيمن للحفاظ على توازنه‪.‬‬ ‫‪ ،‬إذا استثمر المالكون المزيد من األموال (زيادة األسهم)‪ ،‬فإن ذلك يضيف أي ً‬ ‫ ‬  Transaction Analysis Example 1 The following transactions took place in Alaa Company: 1.Alaa invests personal money as capital. 2.BIS Store purchases equipment for cash. 3.BIS Store acquires supplies on credit from a supplier. 4.BIS Store receives cash from customers for service provided. 5.BIS Store receives a bill for advertising services but doesn't pay it yet. 6.BIS Store provides services/products to customers and bills them. 7.BIS Store pays various expenses in cash (e.g., rent, salaries, utilities). 8.BIS Store pays the advertising bill. (transaction 5) 9.BIS Store receives cash from previously billed customers. (transaction 6) 10.Alaa withdraws cash for personal use.  Transaction Analysis Example 1 1.Alaa invests personal money as capital. Cash Capital  Transaction Analysis Example 1 2. BIS Store purchases equipment for cash. Cash equipment  Transaction Analysis Example 1 3. BIS Store acquires supplies on credit from a supplier. supplies Accounts Payable  Transaction Analysis Example 1 4. BIS Store receives cash from customers for service provided. Cash Revenue  Transaction Analysis Example 1 5. BIS Store receives a bill for advertising services but doesn't pay it yet. Accounts Payable Expenses  Transaction Analysis Example 1 6. BIS Store provides services/products to customers and bills them. Accounts Receivable Revenue  Transaction Analysis Example 1 7. BIS Store pays various expenses in cash (e.g., rent, salaries, utilities). Cash Expenses  Transaction Analysis Example 1 8. BIS Store pays the advertising bill. (transaction 5) Cash Accounts Payable  Transaction Analysis Example 1 9. BIS Store receives cash from previously billed customers. (transaction 6) Accounts Receivable Cash  Transaction Analysis Example 1 10. Alaa withdraws cash for personal use. Cash Capital  Transaction Analysis Example 1 The following transactions took place in Alaa Company: 1.Alaa invests personal money as capital. o Assets + Equity + 2.BIS Store purchases equipment for cash. o Assets - , Assets + 3.BIS Store acquires supplies on credit from a supplier. o Assets +, Liabilities + 4.BIS Store receives cash from customers for service provided. o Assets + , Equity + 5.BIS Store receives a bill for advertising services but doesn't pay it yet. o Liabilities + , Equity - 6.BIS Store provides services/products to customers and bills them. o Assets +, Equity + 7.BIS Store pays various expenses in cash (e.g., rent, salaries, utilities). o Assets -, Equity - 8.BIS Store pays the advertising bill. (transaction 5) o Assets -, Equity - 9.BIS Store receives cash from previously billed customers. (transaction 6) o Assets +, Assets - 10.Alaa withdraws cash for personal use. o Assets -, Equity -  Expended Accounting Equation Assets Liabilities Owner's Equity Owner’s Owner’s Revenue Expenses Capital Drawing  Transaction Analysis Example 2 The following transactions took place in Alaa Company: 1. Alaa decides to start a smartphone app development company which he names Appstore. On September 1, 2021, he invests LE15,000 cash in the business. 2. Appstore Inc. purchases computer equipment for LE 7,000 cash. 3. Appstore Inc. purchases for LE 1,600 headsets and other accessories expected to last several months. The supplier allows Appstore to pay this bill in October. 4. Appstore Inc. receives LE 1,200 cash from customers for app development services it has performed 5. Appstore Inc. receives a bill for LE 250 from the Daily News for advertising on its online website but postpones payment until a later date 6. Appstore performs LE 3,500 of services. The company receives cash of LE1,500 from customers, and it bills the balance of LE 2,000 on account. 7. Appstore Inc. pays the following expenses in cash for September: office rent LE 600, salaries and wages of employees LE 900, and utilities LE 200. 8. Appstore Inc. pays its LE 250 Daily News bill in cash. The company previously (in Transaction 5) recorded the bill as an increase in Accounts Payable. 9. Appstore Inc. receives LE 600 in cash from customers who had been billed for services (in Transaction 6). 10. Alaa withdraws LE1,300 in cash in cash from the business for his personal use.  Transaction Analysis Example 2 1. Alaa decides to start a smartphone app development company which he names Appstore. On September 1, 2021, he invests LE15,000 cash in the business.  Transaction Analysis Example 2 2. Appstore Inc. purchases computer equipment for LE 7,000 cash.  Transaction Analysis Example 2 3. Appstore Inc. purchases for LE 1,600 headsets and other accessories expected to last several months. The supplier allows Appstore to pay this bill in October.  Transaction Analysis Example 2 4. Appstore Inc. receives LE 1,200 cash from customers for app development services it has performed  Transaction Analysis Example 2 5. Appstore Inc. receives a bill for LE 250 from the Daily News for advertising on its online website but postpones payment until a later date  Transaction Analysis Example 2 6. Appstore performs LE 3,500 of services. The company receives cash of LE1,500 from customers, and it bills the balance of LE 2,000 on account.  Transaction Analysis Example 2 7. Appstore Inc. pays the following expenses in cash for September: office rent LE 600, salaries and wages of employees LE 900, and utilities LE 200.  Transaction Analysis Example 2 8. Appstore Inc. pays its LE 250 Daily News bill in cash. The company previously (in Transaction 5) recorded the bill as an increase in Accounts Payable.  Transaction Analysis Example 2 9. Appstore Inc. receives LE 600 in cash from customers who had been billed for services (in Transaction 6).  Transaction Analysis Example 2 10. Alaa withdraws LE1,300 in cash in cash from the business for his personal use. Transaction Analysis Example 2  Thanks! Do you have any questions? Credits:[email protected] This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik. Chapter2: The Accounting Equation and The Debit and Credit Rule Financial statements  Chapter2: The Accounting Equation and The Debit and Credit Rule (this video) 1) Explain the building blocks of accounting: principles, and assumptions. 2) State the accounting equation, and define its components. PART 2 3) Analyze the effects of business transactions on the accounting equation. 4) Describe the basic financial statements and how they are prepared. 5) Describe how accounts, debits, and credits are used to record business transactions. 6) Indicate how a journal is used in the recording process. 7) Explain how a ledger and posting help in the recording process. 8) Prepare a trial balance. Financial Accounting 1. Statement of financial position (Balance Sheet) 2. Statement of income or the income statement 3. Statement of owner’s equity 4. Statement of cash flows  The Statement of Financial Position. (Balance Sheet) The statement of financial position shows resources owned or controlled by the firm and its Obligations to others. The difference between resources owned (assets) and obligations (Liabilities) is called Owner's equity or Capital. The statement of financial position includes: 1. Assets: Assets are expected economic benefits owned or controlled by the entity as a result of past transactions. Assets can be classified into two main categories: o Current Assets: These are the assets that are either cash or can be converted into cash within a short period, usually within a year. Current assets include items like cash, inventory, and accounts receivable, which are important for the day-to-day operations of a business. o Fixed Assets: These are the assets that a business uses for the long term and that are not expected to be converted into cash within a year. Fixed assets include things like buildings, equipment, and vehicles, which are necessary for the production process and are not intended for sale. o Fixed assets divided into: a) Tangible fixed assets such as: Land, building, cars, furniture. o b) Intangible Assets: such as goodwill, copyrights and trademark 2. Liabilities (Obligations) Liabilities Are future economic sacrifices of benefits resulting from current obligations to transfer or render services to other entities in the future as a result of past transactions or events. 3. Owner's Equity or Capital Is the remaining of assets after subtracting all liabilities. Equity = Assets – Liabilities  The Statement of Financial Position. (Balance Sheet) The statement of financial position can be shown in two different forms as follows:  Accounting assumptions and Principles Related to the statement of financial position. Presenting assets and liabilities on the statement of financial position is based on a set of assumptions and principles which can be summarized as follows: 1. Accounting Entity Assumptions: According to this assumption, the business is viewed or a part of it or its activities separate from the personal activities of owners. This statement contains any elements related only to business. 2. The Going Concern Assumption: According to this assumption, the statement of financial position is prepared with the assumption that the entity or company will continue in business until it achieves its goals. Accordingly, any change in the prices of assets after acquisition is not important since the objective of acquisition is using them in activities and operations not to resell them. Sale of assets may result in ending business or affect the continuity of the firm. 3. The Cost Principle: According to the cost principle, assets and liabilities are shown on the statement of financial position at their cost. Any changes in the value of assets after the acquisition is ignored. This means that the values of assets do not reflect the market values of these assets. 4. Stable Monetary Unit Assumption: Values are measured using known currencies (Dollar, Euro, Egyptian pounds, etc.) Because these currencies are generally accepted measure of value and a medium of exchange. It is also assumed that the monetary unit has fixed purchasing power.  Income Statement The Income statement is an important report prepared by accountants at the end of the accounting period to show the results of all activities of the period. The income statement includes the revenues and the cost of producing these revenues (expenses). The difference between revenues and expenses is called net income or net loss. Accordingly, the income statement contains the following items: 1. Revenues: Revenue is the price for selling products or goods to customers, the price for rendering services to them regardless of collecting these prices from customers or not during the period. Service firms get fees or commissions for their services while commercial or manufacturing firms get sales revenues. 2. Expenses: Expenses are the cost of providing resources, and facilities necessary to perform services or produce and sell products. So, we call expenses the cost of producing revenues. 3. Gains and Losses: Companies may sell some of its assets like equipment or land either for its obsolesces or not needing them. If the sale produces increase of equity. this increase is called gains. If sale produces decrease in equity this decrease is called loss. Thus, gains and losses are net change in equity from noncentral activities of the firm.  Income Statement Net Income (Net Loss) = Revenues and Gains — Expenses and Losses The income statement may be presented in one of two formats, the report format, or the T-account format. T-account format the report format  Accounting assumptions and Principles Related to the income statement. 1. Periodicity Assumptions: According to this assumption, the life of business is divided into Equal periods, normally a calendar year, which is called financial period or accounting period. This assumption helps in measuring net income for each period instead of waiting to the end of the business's life to know the real profit or loss for the business. This is done by relating revenues and expenses to each period. Normally, the accounting period is a year (12 months). It starts at any month, it may or may not coincide with the calendar year. The important thing is that it should be 12 months. The entity may prepare its financial statements for shorter periods (Quarterly, semi-annually, or monthly) 2. Revenue Recognition Principle: This concept is related to the timing of recording revenues in the accounting records. According to this principle, revenues should be recorded when it is realized or realizable. Revenue is realized when the services are rendered, or the product is delivered to customers, regardless of collecting its price. If the service is rendered to a customer in April but its price is collected in May, it should be recorded in April and not in May. As for expenses they are recorded in the same period of revenues generated from them. We mentioned that expenses are the cost of producing revenues. 3. The Matching Principle: This principle states that expenses are spent to generate revenues, so, revenues of the period should be matched with all expenses contributed to the production of these revenues. Timing is a very important factor in the application of the matching principle to match revenues and expenses. It needs a great amount of estimation and professional judgment from accountants.  Transaction Analysis Example 1 Problem 1: On April 1, Seif Salah established Salah’s Travel Agency. The following transactions were completed during the month. 1. Invested $15,000 cash to start the agency. 2. Paid $600 cash for April office rent. 3. Purchased equipment for $3,000 cash. 4. Incurred $700 of advertising costs in the Chicago Tribune, on account. 5. Paid $900 cash for office supplies. 6. Performed services worth $10,000: $3,000 cash is received from customers, and the balance of $7,000 is billed to customers on account. 7. Withdrew $600 cash for personal use. 8. Paid Chicago Tribune $500 of the amount due in transaction (4). 9. Paid employees’ salaries $2,500. 10. Received $4,000 in cash from customers who have previously been billed in transaction (6). Instructions (a) Prepare a tabular analysis of the transactions using the following column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Owner’s Capital, Owner’s Drawings, Revenues, and Expenses. (b) Prepare income statement, statement of owner’s equity and the statement of financial position.  Transaction Analysis Example 1 1. Invested $15,000 cash to start the agency. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000  Transaction Analysis Example 1 2. Paid $600 cash for April office rent. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600  Transaction Analysis Example 1 3. Purchased equipment for $3,000 cash. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000  Transaction Analysis Example 1 4. Incurred $700 of advertising costs in the Chicago Tribune, on account. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700  Transaction Analysis Example 1 5. Paid $900 cash for office supplies. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900  Transaction Analysis Example 1 6. Performed services worth $10,000: $3,000 cash is received from customers, and the balance of $7,000 is billed to customers on account. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000  Transaction Analysis Example 1 7. Withdrew $600 cash for personal use. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600  Transaction Analysis Example 1 8. Paid Chicago Tribune $500 of the amount due in transaction (4). Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500  Transaction Analysis Example 1 9. Paid employees’ salaries $2,500. Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500 9 -2500 -2500  Transaction Analysis Example 1 10. Received $4,000 in cash from customers who have previously been billed in transaction (6). Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500 9 -2,500 -2500 10 +4,000 -4,000  Transaction Analysis Example 1 Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500 9 -2,500 -2500 10 +4,000 -4,000 +13,900 +3,000 +900 +3,000 +200 +15,000 -3,800 +10,000 -600 total 20,800 20,800  Transaction Analysis Example 1 Problem 1: On April 1, Seif Salah established Salah’s Travel Agency. The following transactions were completed during the month. 1. Invested $15,000 cash to start the agency. 2. Paid $600 cash for April office rent. 3. Purchased equipment for $3,000 cash. 4. Incurred $700 of advertising costs in the Chicago Tribune, on account. 5. Paid $900 cash for office supplies. 6. Performed services worth $10,000: $3,000 cash is received from customers, and the balance of $7,000 is billed to customers on account. 7. Withdrew $600 cash for personal use. 8. Paid Chicago Tribune $500 of the amount due in transaction (4). 9. Paid employees’ salaries $2,500. 10. Received $4,000 in cash from customers who have previously been billed in transaction (6). Instructions (a) Prepare a tabular analysis of the transactions using the following column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Owner’s Capital, Owner’s Drawings, Revenues, and Expenses. (b) Prepare income statement, statement of owner’s equity and the statement of financial position.  The Statement of Financial Position. (Balance Sheet) The statement of financial position shows resources owned or controlled by the firm and its Obligations to others. The difference between resources owned (assets) and obligations (Liabilities) is called Owner's equity or Capital. The statement of financial position includes: 1. Assets: Assets are expected economic benefits owned or controlled by the entity as a result of past transactions. Assets can be classified into two main categories: o Current Assets: These are the assets that are either cash or can be converted into cash within a short period, usually within a year. Current assets include items like cash, inventory, and accounts receivable, which are important for the day-to-day operations of a business. o Fixed Assets: These are the assets that a business uses for the long term and that are not expected to be converted into cash within a year. Fixed assets include things like buildings, equipment, and vehicles, which are necessary for the production process and are not intended for sale. o Fixed assets divided into: a) Tangible fixed assets such as: Land, building, cars, furniture. o b) Intangible Assets: such as goodwill, copyrights and trademark 2. Liabilities (Obligations) Liabilities Are future economic sacrifices of benefits resulting from current obligations to transfer or render services to other entities in the future as a result of past transactions or events. 3. Owner's Equity or Capital Is the remaining of assets after subtracting all liabilities. Equity = Assets – Liabilities  The Statement of Financial Position. (Balance Sheet) The statement of financial position can be shown in two different forms as follows:  Accounting assumptions and Principles Related to the statement of financial position. Presenting assets and liabilities on the statement of financial position is based on a set of assumptions and principles which can be summarized as follows: 1. Accounting Entity Assumptions: According to this assumption, the business is viewed or a part of it or its activities separate from the personal activities of owners. This statement contains any elements related only to business. 2. The Going Concern Assumption: According to this assumption, the statement of financial position is prepared with the assumption that the entity or company will continue in business until it achieves its goals. Accordingly, any change in the prices of assets after acquisition is not important since the objective of acquisition is using them in activities and operations not to resell them. Sale of assets may result in ending business or affect the continuity of the firm. 3. The Cost Principle: According to the cost principle, assets and liabilities are shown on the statement of financial position at their cost. Any changes in the value of assets after the acquisition is ignored. This means that the values of assets do not reflect the market values of these assets. 4. Stable Monetary Unit Assumption: Values are measured using known currencies (Dollar, Euro, Egyptian pounds, etc.) Because these currencies are generally accepted measure of value and a medium of exchange. It is also assumed that the monetary unit has fixed purchasing power.  Income Statement The Income statement is an important report prepared by accountants at the end of the accounting period to show the results of all activities of the period. The income statement includes the revenues and the cost of producing these revenues (expenses). The difference between revenues and expenses is called net income or net loss. Accordingly, the income statement contains the following items: 1. Revenues: Revenue is the price for selling products or goods to customers, the price for rendering services to them regardless of collecting these prices from customers or not during the period. Service firms get fees or commissions for their services while commercial or manufacturing firms get sales revenues. 2. Expenses: Expenses are the cost of providing resources, and facilities necessary to perform services or produce and sell products. So, we call expenses the cost of producing revenues. 3. Gains and Losses: Companies may sell some of its assets like equipment or land either for its obsolesces or not needing them. If the sale produces increase of equity. this increase is called gains. If sale produces decrease in equity this decrease is called loss. Thus, gains and losses are net change in equity from noncentral activities of the firm.  Income Statement Net Income (Net Loss) = Revenues and Gains — Expenses and Losses The income statement may be presented in one of two formats, the report format, or the T-account format. T-account format the report format  Accounting assumptions and Principles Related to the income statement. 1. Periodicity Assumptions: According to this assumption, the life of business is divided into Equal periods, normally a calendar year, which is called financial period or accounting period. This assumption helps in measuring net income for each period instead of waiting to the end of the business's life to know the real profit or loss for the business. This is done by relating revenues and expenses to each period. Normally, the accounting period is a year (12 months). It starts at any month, it may or may not coincide with the calendar year. The important thing is that it should be 12 months. The entity may prepare its financial statements for shorter periods (Quarterly, semi-annually, or monthly) 2. Revenue Recognition Principle: This concept is related to the timing of recording revenues in the accounting records. According to this principle, revenues should be recorded when it is realized or realizable. Revenue is realized when the services are rendered, or the product is delivered to customers, regardless of collecting its price. If the service is rendered to a customer in April but its price is collected in May, it should be recorded in April and not in May. As for expenses they are recorded in the same period of revenues generated from them. We mentioned that expenses are the cost of producing revenues. 3. The Matching Principle: This principle states that expenses are spent to generate revenues, so, revenues of the period should be matched with all expenses contributed to the production of these revenues. Timing is a very important factor in the application of the matching principle to match revenues and expenses. It needs a great amount of estimation and professional judgment from accountants.  The Accrual Basis of Accounting The policy of recording revenues when realized or expenses in the same period of its revenues, regardless of its collection or payment is called Accrual Basis of Accounting: This basis aims at measuring income for each period separately. There is another basis of accounting called The Cash Basis of Accounting in which revenues are recorded when its values are collected, and expenses are recorded when they are paid. Regardless of realization or matching. The Cash basis of accounting measures cash receipts and cash payment and is not an accurate measure for profit or loss., since it mixes revenues and expenses of different periods.  Transaction Analysis Example 1 Problem 1: On April 1, Seif Salah established Salah’s Travel Agency. The following transactions were completed during the month. 1. Invested $15,000 cash to start the agency. 2. Paid $600 cash for April office rent. 3. Purchased equipment for $3,000 cash. 4. Incurred $700 of advertising costs in the Chicago Tribune, on account. 5. Paid $900 cash for office supplies. 6. Performed services worth $10,000: $3,000 cash is received from customers, and the balance of $7,000 is billed to customers on account. 7. Withdrew $600 cash for personal use. 8. Paid Chicago Tribune $500 of the amount due in transaction (4). 9. Paid employees’ salaries $2,500. 10. Received $4,000 in cash from customers who have previously been billed in transaction (6). Instructions (a) Prepare a tabular analysis of the transactions using the following column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Owner’s Capital, Owner’s Drawings, Revenues, and Expenses. (b) Prepare income statement, statement of owner’s equity and the statement of financial position.  Expended Accounting Equation Assets Liabilities Owner's Equity Owner’s Owner’s Revenue Expenses Capital Drawing Income Statement  Transaction Analysis Example 1 Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500 9 -2,500 -2500 10 +4,000 -4,000 +13,900 +3,000 +900 +3,000 +200 +15,000 -3,800 +10,000 -600 total 20,800 20,800  Transaction Analysis Example 1 income statement 2. Paid $600 cash for April office rent. 4. Incurred $700 of advertising costs in the Chicago Tribune, on account. 6. Performed services worth $10,000: $3,000 cash is received from customers, and the balance of $7,000 is billed to customers on account. 9. Paid employees’ salaries $2,500. Owner’s equity Salah’s Travel Agency # Capital Expenses Revenues Drawings Income statement For the Month Ended April 30, 2023 1 +15,000 Revenue 2 -600 Service Revenue $10,000 3 Expenses 4 -700 office rent $600 5 advertising Exp. 700 employees’ salaries 2500 6 +10,000 Total Expenses ($3,800) 7 -600 Net Income $6,200 8 9 -2500 10  Expended Accounting Equation Assets Liabilities Owner's Equity Owner’s Owner’s Revenue Expenses Capital Drawing 1- Income Statement 2- Statement of owner’s equity  Transaction Analysis Example 1 Statement of owner’s equity Owner’s equity # Capital Expenses Revenues Drawings Salah’s Travel Agency 1 +15,000 Statement of owner’s equity 2 -600 For the Month Ended April 30, 2023 3 Owner’s Capital, April 1 $15,000 Add: Net Income 6,200 4 -700 21,200 5 Less: Drawings (600) 6 +10,000 Owner’s Capital, April 30 $20,600 7 -600 8 9 -2500 10  Expended Accounting Equation Assets Liabilities Owner's Equity Owner’s Owner’s Revenue Expenses Capital Drawing 1- Income Statement 2- Statement of owner’s equity 3- Statement of financial position (Balance Sheet)  Transaction Analysis Example 1 Statement of financial position (Balance Sheet) Salah’s Travel Agency Statement of financial position For the Month Ended April 30, 2023 Assets Liabilities and Owner’s Equity Cash 13,900 A/P 200 Equipment's 3,000 Owner’s Equity 20,600 Supplies 900 A/R 3,000 Total Assets 20,800 Total Liabilities and 20,800 Owner’s Equity  Thanks! Do you have any questions? Credits:[email protected] This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik. Ali Salah Part 1  Chapter3: Simple Accounting Cycle 1. Identification, and measurement of transactions and events that should be recorded on the accounting records. 2. Recording these activities on the JOURNAL using the JOURNAL ENTRIES. (this video) 3. Transferring the journal entries from the journal to related Accounts in the Ledger (POSTING) PART 1 4. Preparing the (TRIAL BALANCE) 5. Preparing the Financial Statements. 6. Closing the Temporary Accounts at the end of the accounting period 7. Preparing (after closing TRIAL BALANCE)  Definition of simple accounting cycle (Without Adjustments) The accounting cycle is the set of steps followed by accountants to record transactions and prepare the financial statements. Normally, the cycle starts with the first transaction in the period and ends with closing the accounts after preparing the financial statements. These steps are repeated for each accounting period. The simple accounting cycle includes the following steps: 1. Identification, and measurement of transactions and events that should be recorded on the accounting records. 2. Recording these activities on the JOURNAL using the JOURNAL ENTRIES. 3. Transferring the journal entries from the journal to related Accounts in the Ledger (POSTING) 4. Preparing the (TRIAL BALANCE) 5. Preparing the Financial Statements. 6. Closing the Temporary Accounts at the end of the accounting period 7. Preparing (after closing TRIAL BALANCE)  Definition of simple accounting cycle (Without Adjustments) 1. Identifying and measuring Transactions and events that should be recorded: The first step in the accounting cycle is the analysis of events and transactions that occurred in the company to determine what should be included in the accounting records. Normally all transactions and events should be recorded, as long as, they can be expressed in monetary units (Financial transactions ). All nonmonetary activities should be excluded (Non Financial transactions ) such as changing employees and changing management policies. Events can be divided into two types: a. Internal events which occur in the company, such as using assets in activities, or using raw materials in production. b. External events which include interaction between the company and other companies or environment. Such as price changes, natural crisis, or technological changes. Normally events include a mix of the two types  Definition of simple accounting cycle (Without Adjustments) 2. Recording these activities on the JOURNAL using the JOURNAL ENTRIES: ‫ القيود اليومية‬ The second step in the accounting cycle is recording of the transactions in the general journal or the book of original record. Recording is made chronologically or in order according to date. Transactions occurred first should be recorded first. and other transactions should be recorded according to date. So, the general journal is a historical record for all transactions and events in one place. Amounts Date Account Titles and Explanation Ref. no Doc. no Entry no Debit (Dr.) Credit (Cr.) Name of Debit account D/M/Y Name of Credit account (……more Explanation……..) D/M/Y Name of Debit account Name of Credit account (……more Explanation……..)  Transaction Analysis Example 1 Assets liabilities Owner’s equity # Cash Equipment Supplies A/R A/P Capital Expenses Revenues Drawings 1 +15,000 +15,000 2 -600 -600 3 -3,000 +3,000 4 +700 -700 5 -900 +900 6 +3,000 +7,000 +10,000 7 -600 -600 8 -500 -500 9 -2,500 -2500 10 +4,000 -4,000 +13,900 +3,000 +900 +3,000 +200 +15,000 -3,800 +10,000 -600 total 20,800 20,800  Debit and Credit Rule The account has two sides. The left side is called DEBIT side and the right is called the CREDIT side. Now we should determine whether the change in the account should be recorded in the debit or the credit side. The debit and credit have different meanings in real life. For accountants, Debit means left side and Credit means right side and there is no other meaning for these two terms. The normal balance of the assets accounts is the DEBIT balance which means that any increase in these accounts is recorded in the debit side which is the left side of the accounting equation. The normal balance of the liabilities and owner's equity accounts is the CREDIT balance which means that any increase in these accounts is recorded in the credit side which is the right side of the equation. Note: Normal balance is on the increase side.  Debit and Credit Rule + Debit - Credit + Credit - Debit + Credit - Debit Salah’s Travel Agency Statement of financial position For the Month Ended April 30, 2023 Assets Liabilities and Owner’s Equity Cash 13,900 A/P 200 Equipment's 3,000 Owner’s Equity 20,600 Supplies 900 A/R 3,000 Total Assets 20,800 Total Liabilities and 20,800 Owner’s Equity Debit and Credit Rule  Debit and Credit Rule DEBIT CREDIT AED Assets Expenses Drawing Double-entry system Each transaction must affect two or more accounts to keep the basic accounting equation in balance. Recording done by debiting at least one account and crediting at least one other account. Debit = Credit  Problem 1 January 1 Deposit $75,000 in the bank as capital for the business. January 5 borrowing $25,000 from Banque Misr in cash. January 8 Pictures of a building for $60,000. paid $25,000 in cash & sign a note payable for the remaining balance to be paid after two months. January 9 Purchase office supplies for $10,000 on credit. January 12 paid rent for $4000 in cash. January 15 provide services to customers for $12,000 in cash. January 18 paid the amount due for office supplies. January 22 provide services to customers for $10,000 on account. January 25 paid salaries for $4000 in cash. January 28 collect the amount due from customers on 22 in cash. January 31 The owner withdrew $2000 in cash for personal use. Required: 1- prepare journal entries to record the above transactions. 2- post the journal entries to the Ledger accounts. 3- prepare the trial balance after posting. 4- prepare the financial statements January 1 Deposit $75,000 in the bank as capital for the business. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital January 5 borrowing $25,000 from Banque Misr in cash. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash  January 8 Purchasing of a building for $60,000. paid $25,000 in cash & sign a note payable for the remaining balance to be paid after two months. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 January 9 Purchase office supplies for $10,000 on credit. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000  January 12 paid rent for $4000 in cash. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 January 15 provide services to customers for $12,000 in cash. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000  January 18 paid the amount due for office supplies. Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000 18/1 Accounts Payable 10,000 Cash 10,000  Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash January 22 provide services to customers for $10,000 on 8/1 Building 60,000 account. Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000 18/1 Accounts Payable 10,000 Cash 10,000 22/1 Accounts Receivable 10,000 Services revenue 10,000  Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash January 25 paid salaries for $4000 in cash. 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000 18/1 Accounts Payable 10,000 Cash 10,000 22/1 Accounts Receivable 10,000 Services revenue 10,000 25/1 Salaries Expenses 4,000 Cash 4,000  Amounts Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 Borrowing loan in cash 8/1 Building 60,000 January 28 Cash 25,000 collect the amount due from customers on 22 in Notes Payable 35,000 cash. 9/1 Office supplies 10,000 Account Payable 10,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000 18/1 Accounts Payable 10,000 Cash 10,000 22/1 Accounts Receivable 10,000 Services revenue 10,000 25/1 Salaries Expenses 4,000 Cash 4,000 28/1 Cash 10,000 Accounts Receivable 10,000  Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Loan 25,000 8/1 Building 60,000 Cash 25,000 Notes Payable 35,000 January 31 9/1 Office supplies 10,000 The owner withdrew $2000 in cash for personal Account Payable 10,000 use. 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Services revenue 12,000 18/1 Accounts Payable 10,000 Cash 10,000 22/1 Accounts Receivable 10,000 Services revenue 10,000 25/1 Salaries Expenses 4,000 Cash 4,000 28/1 Cash 10,000 Accounts Receivable 10,000 31/1 Drawings 2,000 Cash 2,000  Definition of simple accounting cycle (Without Adjustments) 3. Transferring the journal entries from the journal to related Accounts in the Ledger (POSTING) ‫الترحيل الي دفتر االستاذ‬ After recording transactions in the journal, the debit and credit entries should be transferred to the ledger accounts to classify the transactions as explained in chapter two. The transfer process is called posting the journal entries to the accounts in the ledger. The ledger contains all accounts, one page for each item of the financial statements. The account is divided in two sides, the left side for the debit entries and the second side for the credit entries of the item. Dr. Cash Cr. 1/1 75,000 12/1 25,000 Ending Balance 50,000  Date Explanation Debit Credit 1/1 Cash 75,000 Capital 75,000 Deposit in bank as capital 5/1 Cash 25,000 Dr. Cash Cr. Loan 25,000 8/1 Building 60,000 1/1 75,000 8/1 25,000 Cash 25,000 Notes Payable 35,000 5/1 25,000 12/1 4,000 9/1 Office supplies 10,000 Account Payable 10,000 15/1 12,000 19/1 10,000 12/1 Rent Expenses 4,000 Cash 4,000 28/1 10,000 25/1 4,000 15/1 Cash 12,000 Services revenue 12,000 31/1 2,000 18/1 Accounts Payable 10,000 Total 122,000 Total 45,000 Cash 10,000 22/1 Accounts Receivable 10,000 Ending Balance Services revenue 10,000 77,000 25/1 Salaries Expenses 4,000 Cash 4,000 28/1 Cash 10,000 Accounts Receivable 10,000 31/1 Drawings 2,000 Cash 2,000 Dr. Capital Cr. Date Explanation Debit Credit 1/1 Cash 75,000 1/1 75,000 Capital 75,000 Deposit in bank as capital Ending Balance 5/1 Cash 25,000 75,000 Loan 25,000 8/1 Building 60,000 Dr. Loan Cr. Cash 25,000 Notes Payable 35,000 5/1 25,000 9/1 Office supplies 10,000 Account Payable 10,000 Ending Balance 25,000 12/1 Rent Expenses 4,000 Cash 4,000 15/1 Cash 12,000 Dr. Building Cr. Services revenue 12,000 8/1 60,000 18/1 Accounts Payable 10,000 Cash 10,000 Ending Balance 22/1 Accounts Receivable 10,000 60,000 Services revenue 10,000 25/1 Salaries Expenses 4,000 Dr. Notes Payable Cr. Cash 4,000 8/1 35,000 28/1 Cash 10,000 Accounts Receivable 10,000 Ending Balance 31/1 Drawings 2,000 35,000 Cash 2,000 Dr. Office supplies Cr. Date Explanation Debit Credit 1/1 Cash 75,000 9/1 10,000 Capital 75,000 Deposit in bank as capital Ending Balance 5/1 Cash 25,000 10,000 Loan 25,000 8/1 Building 60,000 Dr. Accounts Payable Cr. Cash 25,000 Notes Payable 35,000 18/1 10,000 9/1 10,000 9/1 Office supplies 10,000 Account Payable 10,000 Ending Balance 0 12/1 Rent Expenses 4,000 Cash 4,000 Dr. Rent Expenses Cr. 15/1 Cash 12,000 Services revenue 12,000 12/1 4,000 18/1 Accounts Payable 10,000 Ending Balance Cash 10,000 4,000 22/1 Accounts Receivable 10,000 Services revenue 10,000 Dr. Services revenue Cr. 25/1 Salaries Expenses 4,000 15/1 12,000 Cash 4,000 28/1 Cash 10,000 22/1 10,000 Accounts Receivable 10,000 Ending Balance 31/1 Drawings 2,000 22,000 Cash 2,000 Dr. Accounts Receivable Cr. Date Explanation Debit Credit 1/1 Cash 75,000 22/1 10,000 28/1 10,000 Capital 75,000 Deposit in bank as capital Ending Balance 0 5/1 Cash 25,000 Loan 25,000 8/1 Building 60,000 Dr. Salaries Expenses Cr. Cash 25,000 Notes Payable 35,000 25/1 4,000 9/1 Office supplies 10,000 Account Payable 10,000 Ending Balance 4,000 12/1 Rent Expenses 4,000 Cash 4,000 Dr. Drawings Cr. 15/1 Cash 12,000 Services revenue 12,000 31/1 2,000 18/1 Accounts Payable 10,000 Ending Balance Cash 10,000 2,000 22/1 Accounts Receivable 10,000 Services revenue 10,000 25/1 Salaries Expenses 4,000 Cash 4,000 28/1 Cash 10,000 Accounts Receivable 10,000 31/1 Drawings 2,000 Cash 2,000 Dr. Building Cr. Dr. Office supplies Cr. Dr. Accounts Receivable Cr. 9/1 10,000 22/1 10,000 28/1 10,000 8/1 60,000 Ending Balance Ending Balance 0 Ending Balance 10,000 60,000 Dr. Salaries Expenses Cr. Dr. Accounts Payable Cr. 25/1 4,000 18/1 10,000 9/1 10,000 Dr. Cash Cr. Ending Balance 0 4,000 1/1 75,000 8/1 25,000 Dr. Rent Expenses Cr. Dr. Drawings Cr. 5/1 25,000 12/1 4,000 12/1 4,000 31/1 2,000 15/1 12,000 19/1 10,000 Ending Balance Ending Balance 4,000 2,000 28/1 10,000 25/1 4,000 Dr. Services revenue Cr. Dr. Loan Cr. 31/1 2,000 5/1 25,000 15/1 12,000 Ending Balance 22/1 10,000 Total 122,000 Total 45,000 25,000 Ending Balance Ending Balance 22,000 Dr. Notes Payable Cr. 77,000 Dr. Capital Cr. 8/1 35,000 Ending Balance 1/1 75,000 35,000 Ending Balance 75,000  Definition of simple accounting cycle (Without Adjustments) 4. Preparing the (TRIAL BALANCE) ‫اعداد ميزان المراجعة‬ After finishing the balancing of the accounts and computing the final balance for each account, the next step is to prepare a list of all accounts and their balances. This list is called the trial balance. Preparing the trial balance three functions: - It is an evidence of the equality of the debit and credit amounts in the ledger. - Provides the basis for any adjustments - It is used to prepare the financial statements in the next step. It is preferred to arrange accounts in the trial balance according to its order in the financial statements. Normally we start with Assets, Liabilities, Owner's equity and revenues & Expenses.  Trial Balance January 31, 2024 Amount Explanation Debit Credit Cash 77,000 Building 60,000 Office supplies 10,000 Loans payable 25,000 Notes payable 35,000 Capital 75,000 Drawings 2,000 Services revenue 22,000 Rent expense 4,000 Salaries expenses 4,000 Balances 157,000 157,000  Definition of simple accounting cycle (Without Adjustments) 5. Preparing the Financial Statements ‫اعداد القوائم المالية‬ After we prepare the trial balance, we are ready to prepare the financial statements. Normally we start by preparing the income statement. The income statement includes revenues and gains less expenses and losses. The difference is the net income (profit) if revenues and gains exceed expenses and losses, or net loss if expenses and losses exceed revenues and gains. We prepare the statement of owner s equity after preparing the income statement, to include changes in owner's equity accounts and net income or net loss obtained from the income statement. The final balance of the owner's equity statement shows the ending balance of owner’s equity that is transferred to the statement of financial position. Assets are classified into two categories current and noncurrent (Fixed) assets. Liabilities are also classified into current liabilities and long-term liabilities.  Definition of simple accounting cycle (Without Adjustments) 5. Preparing the Financial Statements ‫اعداد القوائم المالية‬ Assets are classified into two categories current and noncurrent (Fixed) assets. Liabilities are also classified into current liabilities and long-term liabilities. Current assets are those assets which can be converted into cash or used up within one year or the operating cycle whichever is longer. The current assets include cash, marketable securities, AYR, N/R, and Prepaid expenses Noncurrent (Fixed) assets are all assets which are not qualified to be included in current assets. The Fixed assets include Land, Building and Equipment and furniture Intangible assets are long-term rights of the company like patents, copyrights, trade names and trademarks, franchises, and goodwill. These assets do not have physical appearance. Current liabilities are those liabilities that will be settled within one year or the operating cycle, whichever is longer. They include A/P, N/P, any expense payable, and unearned revenues Long-term liabilities any liability which is not qualified for current liabilities in noncurrent. It includes long term loan, and bonds payable  Trial Balance January 31, 2024 Amount Explanation Debit Credit Income statement Cash 77,000 For the Month Ended January 31, 2024 Building 60,000 Revenue Service Revenue $22,000 Office supplies 10,000 Expenses Loans payable 25,000 Rent expense $4,000 Notes payable 35,000 Salaries expenses 4,000 ($8,000) Capital 75,000 Net Income $14,000 Drawings 2,000 Services revenue 22,000