College of Administration and Finance Sciences

Assignment (1)
Deadline: Saturday 16/10/2021 @ 23:59

Course Name: Principles of

Student’s Name:
Accounting
Course Code: ACCT101 Student’s ID Number:
Semester: 1st CRN:
Academic Year: 1443 H

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: /5 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
 Submissions without this cover page will NOT be accepted.
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Assignment Question(s): (Marks 5)

Q1. Discuss three of the accounting principles and assumptions with examples. (1 Mark)
Historical Cost Principle

The principle of historical cost is based on the purchase cost recorded in the books of accounts, that

is, the cost paid to acquire the asset will be recorded in the books of accounts, and this cost will

become the basis for further accounting for this asset.

Suppose no amount is paid to purchase an asset such as the goodwill of the company. However, in

this case, it is a valuable asset of a company, but it will not be recorded as no amount has been paid

to acquire such an asset.

Matching principle

According to this principle, expenses and revenues for the current accounting year should be

matched, i.e. if revenue is recognized, the cost of goods sold should also be charged in the same

accounting period regardless of cash received or not. The matching principle operates on an accrual

basis; Thus, it focuses on the occurrence of the event and not on the receipt of the payment.

For example, X's income is 2,00,000 for the 2021 accounting year and he has only one account i.e.

rent 80,000 per annum. But this year, 2021, the homeowner wants to rent in advance for next year,

2022. Thus, X paid 1,60,000 in 2021 only, but X will only record 80,000 in 2021 in his books, and

the rest will be recorded in the 2022 books for which he was calculated.

Full disclosure principle

The principle of full disclosure specifies that there should be no omission while preparing the books

of account. This means that 100% of income and expenses for a given accounting year should be

recorded in the accounts for that year only, to show true and fair value. If anything is omitted or not
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shown, it should be mentioned, for example, only 90% of sales were recorded, but it has nothing to

do with you disclosing partial transactions, because it will not achieve the goals of setting up

accounts if it is not shown correctly or the exact profit/loss for the year.

If full disclosure is not made in the books of account, the financial position and business

performance will not be fairly disclosed.

Q2. In chapter 3, slide 42, there is a summary of the accounting cycle. Describe each step. (2 Marks)
 Preparing the document and analyzing the financial process

When the financial transaction occurs, the document that proves the validity of the financial

transaction is prepared, so that the accountant can then analyze the financial transaction and

determine the debit party and the creditor party.

 Record entries in the journal

After the accountant analyzes the financial process and determines the debit party and the creditor

party, he then records the financial process in the journal in the form of serial accounting entries

arranged by date.

 Transfer entries from the journal to the ledger and balance the accounts

After recording the transaction in the journal, the debit and credit amounts are then transferred from

the journal to the accounts affected by the financial transaction in the ledger, in order to know the

balance of each account at the end of the period.

 Preparing the trial balance (before inventory adjustments)

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After the financial operations are transferred to the ledger and the accounts are credited, these

accounts are then compiled by preparing a statement called the trial balance, where this balance

contains all the balances of debit and credit accounts that have been transferred from the ledger.

 Recording, posting, and crediting settlement entries

After preparing the trial balance, the accountant reviews and inventory the accounts, and as a result

of the inventory process, it may appear that some accounts need to be modified in their balances by

preparing inventory adjustment entries for these accounts, recording them in the journal, posting and

rebalancing them.

 Preparing the Adjusted Trial Balance (After Inventory Adjustments)

After preparing the inventory adjustment entries and adjusting the balances of some accounts, an

adjusted trial balance is then prepared.

 Preparing the financial statements

After completing the preparation of the modified trial balance, which contains within it all the

accounts and their balances, the account balances are then used to prepare the company’s financial

statements in order to know the outcome of the business’s profit or loss and to know the company’s

financial position at the end of the financial period, and the financial statements that are prepared at

the end of the period It is the income statement, the statement of changes in equity, the statement of

financial position, and the statement of cash flows.

 Closing accounts for the ended fiscal year

After preparing the income statement, the income and expense accounts are closed in the profit and

loss account (income summary), as well as the personal withdrawal account in the capital account or

in one of the equity accounts, as will be explained.

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Q3. Explain the purpose and the importance of the income statement, and prepare the income
statement for ABC company based on the following information taken from the trial balance in 2020
(2 Marks)
Consulting revenue SAR50,000
Rental revenue 20,000
Supplies expense 5,000
Rent expense 30,000
Wages expense 15,000

The purpose of the income statement is to inform managers and investors of whether the company
has made profits or incurred losses during a particular period. The statement is an important part of
the company's performance reports that must be submitted to the Securities and Exchange
Commission. The income statement indicates the company's income over a specific period of time
indicated in the title.

Income statement for ABC company

Income SAR

5000
Consulting Revenue
0

2000
Rental Revenue
0

Total Income 70000

Expense

Supplies Expense 5000

3000
Rent Expense
0

1500
Wages Expense
0

Total Expense 50000

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Net Income= Total Income- Total Expense 20000