‫أسئلة ومواضيع هامة في محاسبة باللغة اإلنجليزية – جامعة الحكمة‬

Indicate whether each of the statements is true or false.

1. The three steps in the accounting process are identification, recording, and
communication. ( )
2. Bookkeeping encompasses all steps in the accounting process. ( )
3. Accountants prepare, but do not interpret, financial reports. ( )
4. The two most common types of external users are investors and company
officers. ( )
5. Managerial accounting focuses on reports for internal users. ( )
Solution: 1. True 2. False 3. False 4. False 5. True
6. The historical cost principle dictates that companies record assets at their cost.
In later periods, however, the fair value of the asset must be used if fair value is
higher than its cost. ( )
7. Relevance means that financial information matches what really happened; the
information is factual. ( )
8. A business owner’s personal expenses must be separated from expenses of the
business to comply with accounting’s economic entity assumption. ( )
choose the correct answer
Financial Statements
Companies prepare five financial statements from the summarized
accounting data.
1. (Income statement- Retained earnings statement- Statement of financial
position - Statement of cash flows) : presents the revenues and expenses and
resulting net
income or net loss for a specific period of time.
2. (Income statement- Retained earnings statement- Statement of financial
position - Statement of cash flows): summarizes the changes in retained earnings
for a specific period of time

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3. (Income statement- Retained earnings statement- Statement of financial
position - Statement of cash flows): reports the assets, liabilities, and equity of
a company at a specific date. (Sometimes referred to as a balance sheet.)
4. (Income statement- Retained earnings statement- Statement of financial
position - Statement of cash flows): summarizes information about the cash
inflows
(receipts) and outflows (payments) for a specific period of time.
5. (Comprehensive income statement - Retained earnings statement- Statement of
financial position - Statement of cash flows): presents other comprehensive
income
items that are not included in the determination of net income in.
Accounting Principles
Measurement Principle (Cost Principle): Accounting information is based on actual
cost. Actual cost is considered objective.
Revenue Recognition Principle: 1. Recognize revenue when goods or services are
provided to customers and. 2. At an amount expected to be received from the
customer.
Expense Recognition Principle (Matching Principle): A company records its
expenses incurred to generate the revenue reported.
Full Disclosure Principle: A company reports the details behind financial
statements that would impact users’ decisions in the notes to the financial
statements.
Accounting Assumptions
Economic Entity – company keeps its activity separate from its owners and other
business unit.
Going Concern - company to last long enough to fulfill objectives and
commitments.
Monetary Unit - money is the common denominator.
Periodicity - company can divide its economic activities into time periods.
Accrual Basis of Accounting – transactions are recorded in the periods in which the
events occur.
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Monetary Unit Assumption: Include in accounting records only transaction data
that can be expressed in terms of money
Economic Entity Assumption: Activities of entity be kept separate and distinct from
activities of its owner and all other economic entities.
Forms of Business Ownership
o Proprietorship
o Partnership
o Corporation
Proprietorship:
• Owned by one person
• Owner is often manager/operator
• Owner receives any profits, suffers any losses, and is personally liable for all debts
Partnership
• Owned by two or more persons
• Often retail and service type businesses
• Generally unlimited personal liability
• Partnership agreement
Corporation
• Ownership divided into transferable shares of stock
• Separate legal entity organized under state corporation law
• Limited liability

The Accounting Equation:

Asset = Liabilities + Owner’s Capital - Owner’s Drawings+ Revenues – Expenses.

Assets:
• Resources a business owns
• Provide future services or benefits
• Cash, Supplies, Equipment, etc.

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Liabilities:
• Claims against assets (debts and obligations)
• Creditors (party to whom money is owed)
• Accounts Payable, Notes Payable, Salaries and Wages Payable, etc.
Owner’s Equity:
• Ownership claim on total assets
• Referred to as residual equity
• Investment by owners and revenues increases owner's equity
• Drawings and expenses decreases owner's equity.
Increase in Owner’s Equity:
• Investment by Owner. Assets the owner puts into the business
• Revenues. Increases in assets or decreases in liabilities resulting from sale of
goods or performance of services in normal course of business.
Decrease in Owner’s Equity:
• Drawings. A withdraw of cash or other assets for personal use
• Expenses. Cost of assets consumed or services used in the process of earning
revenue.
Classify the following items as investment by owner (I), owner’s drawings (D), revenues (R), or expenses
(E). Then indicate whether each item increases or decreases owner’s equity.

Classification Effect on Equity

1. Rent Expense Expense Decrease
2. Service Revenue Revenue Increase
3. Drawings Owner’s Drawings Decrease
4. Salaries and Wages Expense Expense Decrease

A business organized as a separate legal entity under state law having ownership
divided into shares of stock is a:
a. proprietorship

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b. partnership
c. corporation
d. sole proprietorship
Which of the following financial statements is prepared as of a specific date?
a. Balance sheet
b. Income statement
c. Owner’s equity statement
d. Statement of cash flows
Debits:
a. increase both assets and liabilities
b. decrease both assets and liabilities
c. increase assets and decrease liabilities
d. decrease assets and increase liabilities
Accounts that normally have debit balances are:
a. assets, expenses, and revenues
b. assets, expenses, and equity
c. assets, liabilities, and owner’s drawing
d. assets, owner’s drawing, and expenses
Posting:
a. normally occurs before journalizing
b. transfers ledger transaction data to the journal
c. is an optional step in the recording process
d. transfers journal entries to ledger accounts
Net income will result during a time period when:
a. assets exceed liabilities
b. assets exceed revenues

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c. expenses exceed revenues
d. Answer: revenues exceed expenses
Transactions made by Virmari & Co., a public accounting firm, for the month of
August are shown below. Prepare a tabular analysis which shows the effects of
these transactions on the expanded accounting equation, similar to that shown in
Illustration 1.8.
1. The owner invested $25,000 cash in the business.
2. The company purchased $7,000 of office equipment on credit.
3. The company received $8,000 cash in exchange for services performed.
4. The company paid $850 for this month’s rent.
5. The owner withdrew $1,000 cash for personal use.

1. Ray Neal decides to start a smartphone app development company which he

names Soft byte. On September 1, 2020, he invests $15,000 cash in the business.
This transaction results in an equal increase in assets and owner’s equity.
2. Soft byte purchases computer equipment for $7,000 cash.
3. Soft byte Inc. purchases for $1,600 headsets and other computer accessories
expected to last several months. The supplier allows Soft byte to pay this bill in
October.
4. Soft byte receives $1,200 cash from customers for app development services it
has performed.
5. Soft byte Inc. receives a bill for $250 from the Daily News for advertising on its
online website but postpones payment until a later date.
6. Soft byte performs $3,500 of app development services for customers. The
company receives cash of $1,500 from customers, and it bills the balance of $2,000
on account.
7. Soft byte pays the following expenses in cash for September: office rent $600,
salaries and wages of employees $900, and utilities $200.
8. Soft byte pays its $250 Daily News bill in cash. The company previously (in
Transaction 5) recorded the bill as an increase in Accounts Payable and a decrease
in owner’s equity.
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9. Soft byte receives $600 in cash from customers who had been billed for services
(in Transaction 6).

10. Ray Neal withdraws $1,300 in cash in cash from the business for his personal
use.
Required:
1- Recording financial transactions
2- Posting transactions to the general ledger.
The following accounts come from the ledger of SnowGo Company at December
31, 2020.
Equipment $88,000 Owner’s Capital $20,000
Owner’s Drawings 8,000 Salaries and Wages Payable 2,000
Accounts Payable 22,000 Notes Payable (due in 3 months) 19,000
Salaries and Wages Expense 42,000 Utilities Expense 3,000
Accounts Receivable 4,000 Prepaid Insurance 6,000
Service Revenue 95,000 Cash 7,000

Prepare a trial balance in good form.

Illustration: On September 1, Ray Neal invested $15,000 cash in the business, and
Soft byte purchased computer equipment for $7,000 cash
Illustration: On July 1, Butler Company purchases a delivery truck costing $14,000.
It pays $8,000 cash now and agrees to pay the remaining $6,000 on account (to be
paid later).

General Journal
Date Account Titles and Explanation Debit Credit
Cash 15,000
Owner's Capital 15,000
(Owner’s investment of cash in business)
1 Equipment 7,000
Cash
(Purchase of equipment for cash) 7,000
Equipment 14,000

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 Cash 8,000
Accounts Payable
(Purchased truck for cash with balance on account) 6,000

Presented below is selected information related to Flanagan Company at

December 31, 2020.
Flanagan reports financial information monthly.
Equipment 10,000 Utilities Expense 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
a. Determine the total assets of Flanagan Company at December 31, 2020.
b. Determine the net income that Flanagan Company reported for December 2020.
c. Determine the owner’s equity of Flanagan Company at December 31, 2020.

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