College of Administrative and Financial Sciences

Assignment 1
Deadline: 14/1/2023@ 23:59

Course Name: Principles of Accounting Student’s Name:

Course Code: ACCT 101 Student’s ID Number:

Semester: II CRN:

Academic Year: 1444 H

For Instructor’s Use only

Instructor’s Name:

Students’ Grade: / 15 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via the 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 in your information on the cover page.
 Students must mention the question number clearly in their answers.
 Late submissions 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): (Marks15)
Q1. Provide a good illustration of how businesses should adhere to accounting principles and
assumptions, as discussed on slide 16 of Chapter 1. (5marks)
Use this example as a guide for your answer.
According to the cost accounting principle, if a firm purchases land for SR400,000 but an
outside appraiser value it at SR600,000, the land should still be recorded in the books at
SR400,000.

Answer: -
Here is an example of how a business can adhere to the accounting principles and assumptions
discussed on slide 16 of Chapter 1:

Cost principle: According to the cost principle, assets should be recorded at their historical
cost, or the amount paid to acquire them. For example, if a company purchases a piece of
equipment for SR50,000, it should be recorded in the company's books at SR50,000,
regardless of any increase or decrease in the equipment's market value. This principle helps to
ensure that a company's financial statements accurately reflect the cost of its assets.
Example:
A company purchases a piece of equipment for SR50,000 and records it in its books at this
amount, in accordance with the cost principle. The next year, the equipment's market value
increases to SR60,000, but the company continues to record the asset at SR50,000 to adhere
to the cost principle.

Consistency principle: The consistency principle states that a company should use the same
accounting methods from one period to the next. For example, if a company uses the straight-
line method to depreciate its machinery in one year, it should continue to use this method in
future years. This principle helps to ensure that a company's financial statements are
comparable from one period to the next, which makes it easier to track the company's
financial performance over time.
Example:
A company uses the straight-line method to depreciate its machinery in one year, and
continues to use this method in future years to adhere to the consistency principle. This
allows the company to accurately track the decline in the value of its machinery over time
and make informed decisions about when to replace it.

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Going concern principle: The going concern principle assumes that a company will continue
to operate for the foreseeable future, rather than being dissolved or liquidated. This principle
is important because it affects how a company records its assets and liabilities. For example,
if a company is expected to be in business for several more years, it may record its long-term
assets (such as buildings and equipment) at its full value. However, if a company is not
expected to be in business for much longer, it may need to record these assets at a lower
value to reflect their expected disposal.
Example:
A company has taken on a significant amount of debt and is not expected to be in business for
much longer. To adhere to the going concern principle, the company records its long-term
assets (such as buildings and equipment) at a lower value to reflect their expected disposal.
This gives readers of the company's financial statements a more accurate picture of the
company's financial position.

Full disclosure principle: The full disclosure principle requires a company to provide
complete and accurate information in its financial statements. This includes disclosing any
material transactions or events that could affect a reader's understanding of the company's
financial position or performance. For example, if a company has taken on a significant
amount of debt, it should disclose this information in its financial statements to give readers a
complete picture of the company's financial position.
Example:
A company enters a material transaction that could affect its financial position or
performance. To adhere to the full disclosure principle, the company includes a detailed
description of the transaction in its financial statements to give readers a complete
understanding of the company's financial situation.

The materiality principle is an important accounting principle that requires a company to

include only material, or significant, information in its financial statements. Material
information is any information that would likely influence a reader's understanding of a
company's financial position or performance.
Example:
A company is preparing its financial statements for the year and has several small, immaterial
transactions that it is unsure whether to include. According to the materiality principle, the

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 company should only include transactions that are material, or significant, in its financial
statements. For example, if the company has several small expenses that total SR500, but
these expenses do not significantly impact the company's financial position or performance,
the company may decide not to include them in the financial statements. However, if the
company has a significant transaction, such as the purchase of a new factory for SR50,000, it
should include this information in the financial statements because it is material and would
likely influence a reader's understanding of the company's financial position
Q2. Provide an example of each title here and then record the journal entries. Following the
first given answer. (5marks)
1. Providing consulting services and receiving cash.
Given answer:
ABC company provides consulting services and receives 1,000 cash.
Journal entry:

Dr. Cash. 1,000

Cr. Consulting Revenue. 1,000

Answer:

2. Investment by an owner.

An owner of ABC company invests SR10,000 in the business.

Journal entry:

Particular Dr amount Cr amount

Owner's Investment 10,000

To Cash 10,000

3. Purchasing equipment for cash.

ABC company purchases SR5,000 worth of equipment using cash.

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Journal entry:

Particular Dr amount Cr amount

Equipment 5,000

To Cash 5,000

4. Purchasing supplies on credit.

ABC company purchases SR2,000 worth of supplies from a supplier on credit.

Journal entry:

Particular Dr amount Cr amount

Supplies 2,000

To Accounts Payable 2,000

5. Borrowing money from a bank.

ABC company borrows SR50,000 from a bank.

Journal entry:

Particular Dr amount Cr amount

Cash 50,000

To Bank Loan 50,000

6. Paying investors their shares of dividends.

ABC company pays SR5,000 in dividends to its investors.

Journal entry:

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 Particular Dr amount Cr amount

Dividends Payable 5,000

To Cash 5,000

Q3. On 31/12/2020, the following balances appeared in the trial balance of Al Ghanim
Company (5marks)

Al Ghanim Co.
Partial Trial Balance
December 31

Prepaid insurance 1,500

Supplies 1,000

Unearned service revenue 1,500

Equipment 50,000

Additional information:
a. An insurance policy examination showed SR1,000 of expired insurance
b. An inventory count showed SR200 of unused shop supplies still available
c. Depreciation expense on shop equipment, SR10,000
d. SR800 of the Unearned service account balance was earned by year-end.

Required:
1. Make the necessary adjusting entries.
2. Show the impact of these adjustments on the income statement and the balance sheet
statement.

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Answer:
Here are the necessary adjusting entries for Al Ghanim Company based on the information provided:

a) Prepaid insurance: To adjust for the expired insurance, we need to recognize the insurance
expense for the year. The journal entry for this adjustment would be:
Dr. Insurance Expense 1,000
Cr. Prepaid Insurance 1,000

b) Supplies: To adjust for the unused supplies, we need to decrease the supplies expense and
increase the supplies asset. The journal entry for this adjustment would be:
Dr. Supplies 200
Cr. Supplies Expense 200

c) Equipment: To adjust for the depreciation expense on the equipment, we need to recognize
the depreciation expense for the year. The journal entry for this adjustment would be:
Dr. Depreciation Expense 10,000
Cr. Accumulated Depreciation 10,000

d) Unearned service revenue: To adjust for the earned service revenue, we need to recognize
the service revenue for the year. The journal entry for this adjustment would be:
Dr. Service Revenue 800
Cr. Unearned Service Revenue 800

The impact of these adjustments on the income statement and the balance sheet will depend on the
company's specific financial situation. However, in general, the adjustments will affect the
company's net income and its assets and liabilities.
For example, the adjustment for expired insurance will increase the company's insurance expense
and decrease its net income. The adjustment for unused supplies will decrease the company's
supplies expense and increase its net income. The adjustment for earned service revenue will
increase the company's service revenue and increase its net income. The adjustment for depreciation
expense will increase the company's depreciation expense and decrease its net income.
On the balance sheet, the adjustments will affect the company's assets and liabilities. The adjustment
for expired insurance will decrease the company's prepaid insurance assets. The adjustment for
unused supplies will increase the company's supply assets. The adjustment for earned service
revenue will decrease the company's unearned service revenue liability. The adjustment for

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depreciation expense will increase the company's accumulated depreciation asset and decrease the
company's equipment asset.

Thank You!