Accounting first year

Chapter 1

Accounting in action

-What is the accounting system? 1

To understand the meaning and the purpose of the accounting system,

we must explain the environment that surround the accounting system,
"it`s called "business environment

Business environment: includes many organizations that have

interaction relationships between each other's

Transactions may be financial or non-financial

Accounting system

inputs Processing Outputs

Communicating Recording Identifying

financial reports transactions transactions

Types of business enterprises -2

Business

Enterprise

corporations-3 partnership-2 propriatorship-1

Ownership divided Owned by two or Owned by one

into shares of stocks more persons person

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

Using accounting equation -3

Accounting equation

‫حقوق الملكيه‬ + )‫االلتزامات (الخصوم‬ = ‫االصول‬

Owner`s
= Liabilities + Assets
equity

Cash

)+( Capital Notes Notes

payable receivable
)-( Drawings
Accounts Account
Revenues payable receivable
)+(
Wages Supplies
sales rev- payable
Inventory
service rev- Salaries
Land
payable
)-( Expenses
Building
Loans
rent exp-
Furniture
Interest
salary exp-
payable Equipment

Cars

:Assets

Are the economic resources of a business that are expected to be of

benefit in the future

‫ هي الموارد االقتصاديه والتي من المتوقع االستفاده منها فى المستقبل‬: ‫االصول‬

:Liabilities

Are economic obligations payable to outsiders called creditors

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

‫ هي االلتزامات القانونيه المدفوعه او الواجب دفعها لمستحقيها الخارجيين والذين‬: ‫االلتزامات‬

‫يطلق عليهم الدائنون‬

:Owner`s equity

Are the assets held by the owner`s business also they called capital or
insider claims

‫ علليها راس‬4‫ هى مجموعه االصول المملوكه بواسطه مالكى المنشاه ويطلق‬: ‫حقوق الملكيه‬
) ‫المال حقوق االشخاص الداخلين (داخل المنشاه – المالك‬

:Revenues

Are increases in retained earnings from delivering goods or services to

customers or clients

‫ هي الزيادات في ايرادات العمل المحتفظ بها والناتجه عن بيع السلع او تقديم خدمات‬: ‫االيرادات‬

:Expenses

Are decreases in retained earnings that result from operations

‫ هي النقص الناتج فى ايرادات العمل المكتسبه والناتجه عن عمليات المنشاه‬: ‫المصروفات‬

Net income or loss = revenues – expenses

: Example

If the assets of a business are 174.300 and the liabilities are 82.000

Required: compute the owner`s equity

Solution

Assets = liabilities + owner`s equity

= 174.300 - 82.000 = 92.300

: Example

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

A company reported monthly revenues of 77.600 and expenses of

81.300

Required: compute the net income or loss

Solution

Net income or loss = revenues - expenses

( = 81.300 - 77.600 =
)3.700

: Example

Mohammed Company making the following transaction during the

:month of May

The company sell land with 5000$ cash -1

The company sell supplies for 6000$ on account -2

The company receives the balance due on transaction 2 -3

The company sell equipment with 7000$ , that 3000$ cash and the -4
remaining on credit

The company receives the balance due on transaction 4 -5

The company sell building with 4000$ on notes receivable -6

The company receives the balance due on transaction 6 -7

The company sell equipment with 7000$, that 3000$ cash and the -8
remaining on notes receivable

The company receives the balance due on transaction 8 -9

The company purchase land with 8000$ cash -10

The company purchase supplies for 9000$ on account -11

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

The company paid the balance due on transaction 11 -12

The company purchase equipment with 8000$, that 2000$ cash and -13
the remaining on credit

The company paid the balance due on transaction 13 -14

The company purchase building with 5000$ on notes receivable -15

The company paid the balance due on transaction 15 -16

The company purchase equipment with 8000$ , that 2000$ cash and -17
the remaining on notes payable

The company paid the balance due on transaction 17 -18

The company provided repair service for client on 5000$ cash -19

The company provided advertising service for 6000$ on credit -20

The company receives the balance due on transaction 20 -21

The company completed newspaper service for client 5000$ on -22

notes receivable

The company receives the balance due on transaction 22 -23

The company provided advertising service for client for 6000$ that -24
cash 2000$

The company receives the balance due on transaction 24 -25

The company receives cleaning service with 2000$ -26

The company receive utility service for 5000$ on credit -27

The company paid the balance due on transaction 27 -28

The company receive maintenance service for 8000$, that 3000$ -29
cash and the remaining on credit

The company paid the balance due on transaction 29 -30

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

The company receive advertising service for client for 6000$ that -31
2000$ cash and remaining notes payable

The company paid the balance due on transaction 31 -32

The owner invest 3000$ cash in the company -33

The owner invest 4000$ cash and equipment 5000$ for the -34
company

The owner withdraw 3000$ cash for his personal use -35

Assets = liabilities + owner`s

equity
D cash Land supplie A/R equip building N/R A/P N/P capital drawi rev exp
at s ng
e
1 + 5000-
5000
2 6000- +
6000
3 + 6000-
6000
4 + + -
3000 4000 7000
5 + 4000-
4000
6 4000- +
4000
7 + 4000-
4000
8 + - +
3000 7000 4000
9 + +
4000 4000
10 8000- +
8000
11 9000+ +
9000
12 9000- 9000-
13 2000- + +
8000 6000
14 6000- 6000-
15 5000+ +
500
0
16 5000- -
500
0
17 2000- + +

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

8000 600
0
18 6000- -
600
0
19 + +
5000 5000
20 + +
6000 6000
21 + 6000-
6000
22 + +
5000 5000
23 + 5000-
5000
24 + +
2000 4000
25 + 4000-
4000
26 2000- -
20
00
27 + -
5000 50
00
28 5000- 5000-
29 3000- + -
5000 80
00
30 5000- 5000-
31 2000- + -
400 60
0 00
32 4000- -
400
0
33 + 3000+
3000
34 + + 9000+
4000 5000
35 3000- 3000-

Preparing financial statements

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

After recording financial transaction, at the end of accounting period -

we must prepare financial statements from the recorded accounting
data to communicate it to interested users

Financial statements: are the final products of accounting process -

‫ هي الناتج النهائي للعمليه المحاسبيه‬: ‫القوائم الماليه‬

:The financial statements are -

‫ قائمه الدخل‬income statement-1

‫ قائمه حقوق‬owner`s equity statement-2

‫الملكيه‬

‫ الميزانيه العموميه‬balance sheet-3

‫ قائمه التدفقات النقديه‬cash flow statement-4

income statement 2-owner`s equity statement -1

Investment xx
Revenues xx
:Add
:Less
Net income xx
Expenses
:Or less
salary expense (xx)*
Net loss (xx)
rent expense (xx)*
:Less
MR : Mohammed Safwat Mob/ 0109911451 7
Drawings (xx) 8
Net income xxx
 Accounting first year

balance sheet-3

Assets = liabilities + owner`s equity

Cash xx accounts payable xx capital at end xx

A/R xx salary payable xx

Land xx

Building xx

Total assets xxx = total liabilities and owner`s equity

: Example

Gordon beck ham started his own delivery service on June 1, 2012, the
:following transactions occurred during the month of the June

June 1- Gordon invests 10.000$ cash in the business

Purchase used van for deliveries for 12.000$, Gordon paid -2

2000$ cash and signed a note payable for the remaining balance

Paid 500$ for office rent for the month -3

Performed 4.400$ of services on account -5

Withdrew 200$ cash for personal use -9

Purchased supplies for 150$ on account -12

Received a cash payment of 1250$ for services provided on June -15

5

Purchased gasoline for 200$ on account -17

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

Received a cash payment of 1300$ for service provided -20

Made a cash payment of 600$ on the note payable -23

Paid 250$ for utilities -26

paid for the gasoline purchased on account on June 17 -29

Paid 1000$ for employee salaries -30

Date cash A/R Supplies equipment Note Account Capital

payable payable
June .1 10000+ 10000+
June .2 2000- 12000+ 10000+
June .3 500- 500-
June .5 4400+ 4400+
June .9 200- 200-
June.12 150+ 150+
June.15 1250+ 1250-
June.17 200+ 200-
June.20 1300+ 1300+
June.23 600- 600-
June.26 250- 250-
June.29 200- 200-
June.30 1000- 1000-
Total 7800 3150 150 12000 9400 150 13550
Assets = liabilities + O.E
Solution

Revenues (4400+1300) 5700

Investment 10000
:Less
:Add
Expenses
Net income 3750
salary expense (1000)*
:Less
rent expense (500)*
Drawings (200)
gasoline expense (200)*
MR : Mohammed Safwat Mob/ 0109911451 7
utilities expense (250)*
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Capital at the end 13550
Net income 3750
 Accounting first year

Assets = liabilities + owner`s equity

Cash 7800 accounts payable 150 capital at end

A/R 3150 salary payable 9400 13500

Supplies 150

Equipment 12000

Total assets 23100 = total liabilities and owner`s equity 23100

: Example

Alex decided to open a cleaning and laundry service near the local
college campus that will operate as a sole proprietorship. During June
:the following transactions incurred

Alex invests 20.000$ in cash to start a cleaning and laundry business -1

on June 1

Purchased a laundry equipment for 5000$ paying 3000$ in cash and -2

the remainder due in 30days

Purchased laundry supplies for 1200$ cash -3

Received a bill from campus news for 300$ for advertising in the -4
campus newspaper

Cash receipts from customers for cleaning and laundry amounted to -5

1500$

Paid salaries of 200$ to student workers -6

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

Billed the tiger football team 200$ for cleaning and laundry services -7

Paid 300$ to campus news for advertising that was previously bills in -8
transaction 4

Alex withdrew 900$ from the business for living expense -9

Incurred utility expenses for month on account 400$ -10

:Required

Date Cash Account Supplies Equipment Accounts Alex capital

receivable laundry Laundry payable
1 20000+ 20000+
2 3000- 5000+ 2000+
3 1200- 1200+
4 300+ 300-
5 1500+ 1500+
6 200- 200-
7 200+ 200+
8 300- 300-
9 900- 900-
10 400+ 400-
Total 15900 200 1200 5000 2400 19900
Assets =liabilities +
O.E
analyze the above transactions for the month of June in terms of their -
effect in the basic accounting equation

Solutions

:Example

Fesho Company started a new business that began operations on May 1, fesho co,
.completed the following transactions during its first month of operations

May 1 fesho invested 43.000$ cash in the company

the company rented a furniture office and paid 2.200$ cash for may`s rent 1

.the company purchased 1940$ of office equipment on credit 3

the company paid 450$ cash for this month`s cleaning service 5

the company provided consulting services for a client and immediately 8

collected 5.800$ cash

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

the company provided 2.800$ of consulting service for a client on credit 12

the company paid 850$ cash for an assistant`s salary for the first half of this 15
month

the company receive 2.800$ cash payment for the service provided on May 20
12

the company provided 4000$ of consulting services on credit 22

the company received 4000$ cash payment for the service provided on May 25
22

the company paid 1940$ cash for the office equipment purchased on May 3 26

the company purchased 85$ of advertising on this month`s local paper on 27

credit, cash payment is due June 1

the company paid 850$ cash for an assistant`s salary for the second half of 28
this month

the company paid 400$ cash for this month`s telephone bill 30

the company paid 260$ cash for this month`s utilities 30

fesho withdraw 2000$ cash from the company for personal use 31

:Required

arrange the following assets, liability, and equity - )1

show the effects of the transactions on the accounts of the accounting equation - )2
by recording increase and decrease in the appropriate columns

cash A/R Office A/P Owner`s Withdraw Revenue expenses

equipment capital
May 1 + 43000+
43000
1 2200- 2200-
3 1940+ 1940+
5 750- 750-
8 5800+ 5800+
12 2800+ 2800+
15 850- 850-
20 2800+ 2800-

MR : Mohammed Safwat Mob/ 0109911451 7

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 Accounting first year

22 4000+ 4000+
25 4000+ 4000-
26 1940- 1940-
27 85+ 85-
28 850- 850-
30 400- 400-
30 260- 260-
31 2000- 2000-
prepare the financial statements - )3

Assets = liabilities Owner`s equity

Balance sheet

Assets = liabilities + owner`s equity

Revenues
Cash 46350 account payable 85 fesho capital
48205 Consulting service 12.600$
Owner`s capital 1 may19400
Equipment (5800+2800+4000)

:Add :Less
Total 48290$ 48290$
Investment by owner 43000 Expenses

salary expense (850+850) (1700)*

Net income 7205
rent expense (2200) *
:LessMR : Mohammed Safwat Mob/ 0109911451 7
14 cleaning service (750) *
Drawings (2000)
 Accounting first year

:Example

Alex decides to open a cleaning and laundry service near the local college campus
that will operate as a sole proprietorship. During June the following transactions
.incurred

Alex invests 20.000$ in cash to start a cleaning and laundry business on june 1 )1

Purchased laundry equipment for 5000$ paying 3000$ in cash and the rest due in )2
30 days

Purchased laundry supplies for 1200$ cash )3

Received a bill from campus news for 300$ for advertising in the campus )4
newspaper

Cash receipts from customers for cleaning and laundry amounted 1500$ )5

Paid salaries of 200$ to student workers )6

Billed the tiger football team 200$ for cleaning and laundry services )7

Paid 300$ to campus news for advertising that was previously billed transaction 4 )8

Alex withdraw 900$ from the business for living expenses )9

Incurred utility expenses for month on account 400$ )10

:Required

Analyze the above transactions for the month of june in terms of their effect on the
.basic accounting system

MR : Mohammed Safwat Mob/ 0109911451 7

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