Accounting

Two

Chapter one ( Part one )

( BIS / Fmi/FCES )
2024 Romario Khaled
01271535731
01149154059
 Accounting Two [CHAPTER ONE ( PART ONE )]

Accounting one Revision

Assets = Liabilities + Owner’s Equity
‫= االصول اللى بتملكها الشركة‬ ‫الدٌون و المتطلبات‬ + ‫حقوق المالك‬
OR

Assets = owners Equity

‫الشركة ممكن ٌكون معندهاش دٌون بس الزم بكون عندها مالك‬
Expanded Accounting Equation:

Assets = Liabilities + (owner’s capital – owner’s drawings

+ revenues – Expenses )

Assets = Liabilities + Owner’s Equity

+ cash ‫نقدٌة‬ + account payable Increase :
+ land ‫ارض‬ )‫حسابات دٌون بدون ورق (علٌا‬ + capital ‫راس مال‬
+ note payable + revenues ‫اٌرادات‬
+ cars ‫سٌارات‬
)‫حسابات دٌون باوراق (علٌا‬+ Decrease :
+ equipment ‫معدات‬ unearned revenues ‫اٌرادات‬ - Expenses ‫مصروفات‬
+ supplies ‫رفاٌع‬ ‫غٌر مكتسبة‬ ‫مصروفات من غٌرها مفٌش انتاج و بالتالى‬
+ machines ‫مكن‬ ‫حصلت على فلوس قبل اعمل الخدمة‬ ‫مفٌش ارباح وبتكون فى الماضى‬
+ Account/Note - Drawing ‫مسحوبات شخصٌة‬
Receivable
) ‫حسابات قابلة للتحصٌل ( لٌا‬
+ prepaid expenses
‫مصروفات مدفوعة مقدما‬
100 20 80
- We use it to identify and record the effect of transaction
- Any transaction have duel effect ‫تاثٌر ثنائى‬
‫ٌعنً اي عملٌة الزم تعمل علً االقل تاثٌرٌٌن‬
+ and -
+ OR - + OR -
+ OR - + OR -
+ -
+ + -

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Accounting Two [CHAPTER ONE ( PART ONE )]

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 Accounting Two [CHAPTER ONE ( PART ONE )]

Chapter (one)
Accounting for merchandising Operations
1 – merchandising operation ) ‫العملٌات التجارٌة ( ٌعنى اللى بتخص الشركات التجارٌة‬
Types of companies : ‫فى االول الزم نعرف االنواع التالتة للشركات‬
1 – service company : ( Orange / Vodafone / Go Bus )
Companies do not provide any physical products but provide intangible product main
source of revenue is service Revenue

Servicer company have the smallest Operating Cycles

2 – merchandising company :( Retails Shop )( Mobil shop/Be .Tec )

Company purchase product ( merchandise / inventory ) and sell it again as its same type
Have two mean process only ( purchase & sales ) sales revenue is main source of
revenue

3 – manufacturing company : ( Apple / BMW)

Company purchase raw material and produce new product to sell it

Manufacturing and merchandising company have the Largest operating cycle

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 Accounting Two [CHAPTER ONE ( PART ONE )]

2-the Income statement of the merchandising company and kind of

Expenses that afford
‫تعالً نشوف مثال نفهم منه شكل قائمة الدخل للشركة التجارٌة و الشغل جوه الشركة بٌدور ازاي‬
$ 51 ‫ و علٌها خصم‬$ 50 ‫ و الشحن بتاعها‬$ 501 ‫لو قولنا ان فً تاجر بتاع شاشات بٌشتري الشاشه الواحدة بسعر‬
) $ 500 = 51 – 50 + 501 ( = ) ‫ الخصم‬- ‫الشحن و‬+ ‫ٌعنً الشاشة بتقف علٌه ( سعر شراء‬
‫ جوه معرضه‬$ 510 ‫و بٌبٌعها ب‬
1 - purchasing cost =100 $ (Price 501 $+ shipping$50 – discount $ 51 )
2 – selling Price 150 $
‫ شاشات كان فٌهم عٌوب‬1 ‫ شاشة و رجع للشركة‬21 ‫ شاشات و اشتري خالل نفس الشهر‬50 ‫اول الشهر المخزن كان فٌه‬

3 – Available unit = ( beginning + Purchases – purchasing Return )

=( 10 + 25 - 5 ) = 30 unit
4- cost of Goods Available (Assets ) = purchasing cost * Available unit
= 100 $ * 30 unit = 3000 $

$ 510 ‫ فٌهم عٌوب باع الواحدة ب‬2 ‫ شاشة و رجعله منهم‬22 ‫خالل نفس الشهر الراجل باع‬
5 - Net sales ( unit Sold ) = sales – sales return = ( 22 unit – 2 unit ) = 20 unit
6 – sales Revenue = 20 unit * 150 $ = 3000 $
7 – End unit on hand ‫ألبضاعه الباقٌه عنده اللً لسه ما اتباعتش‬
= ( Beg + Purchases – Purchased Return - sold )
= ( 10 + 25 - 5 - 20 ) = 10 unit
8 – Cost of Goods sold ( Expenses ) = ( unit sold * Purchasing Cost )
= ( 20 unit * 100 $ ) = 2000 $
) ‫ عمال كهرباء و مٌاه ( مصارٌف تشغٌل‬$ 10 ‫ اٌجار و‬$ 510 ‫الراجل صاحب المعرض بٌدفع فً الشهر‬
9- Operating Expense = 150 + 50 + 50 = 200 $

10 – cost of Goods Available = ( beginning + Purchases – purchasing Return )

= ( End + Sold )

- A merchandising company has two categories of expenses cost of goods sold

and operating expenses. So income statement of merchandise company will be
showed as

Cost of goods sold (COGS) : The total cost of merchandise sold during the period.
Operating expenses Expenses : incurred in the process of earning sales revenue.
Net sales: Sales revenue less sales returns and allowances and less sales discounts.

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 Accounting Two [CHAPTER ONE ( PART ONE )]

Merchandising company Income Statement

Sales Revenue 200 unit * 150 $ 3000 $
- Cost of good sold 200 unit *100 $ (2000 $)
Gross Profit 1000 $
- Operating (200 $ )
Expenses
Net Operating 800 $
Income
Gross margin profit :
- the profitability ‫ الربح‬of the merchandise ( Sales Rev – COGS)
- The excess of net sales over the cost of goods sold.
Gross profit rate Gross : profit expressed as a percentage, by dividing the amount of
gross profit by net sales. ( 1000 $ / 3000 $ = 33.3 % )

3 – inventory system ( perpetual / periodic )

Flow of costs ( COGS) : we have two system calculate it

1 – perpetual ) ‫ ( (اول باول‬adjusting inventory at time of sale )
2 – periodic ) ‫ ( ( بعد كل فترة‬adjusting inventory at end of period )

perpetual system is the best .

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 Accounting Two [CHAPTER ONE ( PART ONE )]

1 Gross profit will result if:

(a) operating expenses are less than net income.
(b) sales revenues are greater than operating expenses. C
(c) sales revenues are greater than cost of goods sold.
(d) operating expenses are greater than cost of goods sold.
2 The primary source of revenue for a merchandising company results from F
performing services for customers.
3 The operating cycle of a service company is usually shorter than that of a T
merchandising company.
4 Sales revenue less cost of goods sold equals gross profit. T
5 Ending inventory plus the cost of goods purchased equals cost of goods F
available for
sale.
6 Income from operations is gross profit less B
a. cost of goods sold . b.. operating expenses.
c. other expenses and losses. d. selling expenses.
7 An enterprise which sells goods to customers is known as a C
a. proprietorship. b. corporation.
c.. retailer. d. service firm.
8 Which of the following would not be considered a merchandising company? C
a. Retailer b. Wholesaler
c.. Service firm d. Dot Com firm
9 C

10 D

11 D

12 D

13 A merchandising company:
.a. Earns net income by buying and selling merchandise.
b. Receives fees only in exchange for services. A
c. Earns profit from commissions only.
d. Buys products from consumers .

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 Accounting Two [CHAPTER ONE ( PART ONE )]

14 Cost of goods sold: B

a. Is another term for merchandise sales.
.b. Is the term used for the cost of buying and preparing merchandise for sale.
c. Is another term for revenue.
d. Is also called gross margin .
15 A company had sales of $695,000 and cost of goods sold of $278,000 .Its gross D
margin equals:
a. $(417,000).
b. $ 695,000.
c. $ 278,000.
.d. $ 417,000.
16 A company had sales of $375,000 and its gross profit was $157,500. Its D
cost of goods sold equals:
a. $(217,000).
b. $ 375,000.
c. $ 157,500.
.d. $ 217,500 .

4 – Accounting for Purchase (cost of goods purchased ) ) ‫( انت دلوقتً مشتري‬

( Periodic & Prepetual )
‫اتفقنا ان الشركة بتشتري بضاعة او منتج و تبٌعه بنفس صورته و لكن بسعر اعلً هنا ان عاٌز احدد سعرالبضاعة اللً انا‬
‫اشترٌتها و تسجٌل عملٌة الشراء بٌكون ازاي تحت كل نظام من االتنٌن‬
Note that

under periodic system all purchases is purchases Accounts like

* if company Purchase ( Purchases account will increase ) (Dr)
* if company Make return(Purchases Return account will increase )(Cr)
(contra assets)
* if company Get purchasing discount
(Purchases Discount account will increase )(Cr)(contra assets)
* if Company pay fright cost ‫ ( تكلفه نقل‬Fright cost Expenses ) will increase (Dr)

under perpetual system all purchases will have Change inventory

* if company Purchase ( Inventory account will increase ) (Dr)
* if company Make return (Inventory account will increase )(Cr)
* if company Get purchasing discount (Inventory account will increase )(Cr)
* if Company pay fright cost ‫ ( تكلفه نقل‬Inventory will increase) (Dr)
its balance is ( price + fright cost – return - discount)

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 Accounting Two [CHAPTER ONE ( PART ONE )]

Ex 1 : if you know that x company purchase purchases by 1000

Journalize this entry under perpetual and periodic system and at cash and on account

Cash purchases
Periodic system Perpetual system
Purchases 1000 Inventory 1000
Cash 1000 Cash 1000
On Account Purchases
Purchases 1000 Inventory 1000
A/P or 1000 A/P or 1000
N/P N/P

5 – Fright cost ‫تكلفة النقل‬

The sales agreement should indicate who the seller or the buyer is to pay for transporting
the goods to the buyer’s place of business . ) ‫( تكلفة النقل بٌتفقه علٌها فى العقد و مٌن اللى هٌتحملها‬

) ‫( باالتفاق علً مكان التسلٌم بٌحدد مٌن اللً هٌدفع تكلفه النقل‬
Free on board (shipping point ‫)مكان التسلٌم‬ Free on board (destination‫) مكان التسلٌم‬
Incurred by buyer (in) Incurred by seller (out)
‫و لو انت بتشتري و لبٌاع قالك التسلٌم فً مخزنك معنً مثال لو انت بتشتري و البٌاع قالك التسلٌم من ارض‬
‫كدة ان انت كمشتري مش هتدفع حاجة و البٌاع اللً هٌدفع مصنعً معنً كدة ان انت كمشتري هتدفع المواصالت‬
At perpetual At perpetual
- Increase inventory
( cost of goods purchased )
Inventory 200 No Entry
Cash 200
At periodic At periodic
- increase fright in cost expenses

Fright cost 200

No Entry
Transportation In
Cash 200
- No entry at seller
- not related by discount - not related by discount

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 Accounting Two [CHAPTER ONE ( PART ONE )]

Exp2 : if the fright cost is 200 $ and the FOB is fright in (shipping point )
1 - Journalized the entry at buyer book if he use A ) periodic B) perpetual
2 - Journalized the entry at seller book if he use A ) periodic B) perpetual
1
Periodic system Perpetual system
Fright cost 200 Inventory 200
Transportation In Cash 200
Cash 200
2
No Entry No Entry

6 - Purchase Returns and Allowances

Under Periodic System

return ‫ اشترٌنا بضاعة و هنرجعها الي سبب تلف او عدم الرغبة بٌبقً فً حلٌن ٌاما نرجعها و ناخد فلوسنا‬-
Allowance ‫ او البائع ٌنزلنا من تمنها تعوٌضا عن التالف منها او عدم مطابقتها للمواصفات‬-
(contra Assets Account ) ( increase Cr ) ( decrease net Assets )
Under perpetual system
Inventory Account Will Decrease ) (Cr )

Exp 3 : if x company purchase purchases by 1000 cash and he find that 300 of purchases have
damage and he decide to return it to seller .
Journalize this transaction under perpetual and periodic

Periodic system Perpetual system

Cash 300
Purchases Cash 300
return and 300 Inventory 300
allowance

Exp 4 : if x company purchase purchases by 1000 on account and he find that 300 of purchases
have damage and he decide to return it to seller .
Journalize this transaction under perpetual and periodic

Periodic system Perpetual system

A/P 300
Purchases A/P 300
return and 300 Inventory 300
allowance

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 Accounting Two [CHAPTER ONE ( PART ONE )]

7 - Purchase Discount ‫الخصم‬

A) Trade Discount ‫ الخصم التجاري‬and Quantity Discount
B) cash Discount (Gross Method / Net Method ) ‫الخصم النقدي‬

A) Trade Discount ‫ الخصم التجاري‬and Quantity Discount

‫خصم بٌحصل علٌه المشتري من البائع و لو ٌظهر فً الفاتورة و لٌس له قٌد ٌومٌة و مش هٌفرق الشراء كان كاش و ال ال‬

Trade discount :
Merchandising firms often allow reduction from the list or catalogue prices.
Quantity discounts :
are reductions from the list price based on quantity purchases.
‫الفرق بٌنهم كام سوال فً امتحان السنة اللً فاتت‬
Record Purchases and inventory by net amount after Discount

Ex 5 : if x company Purchased purchases cash by 1000 $ and get 10% trade discount
because he is retail shop .
Journalize this transaction under perpetual and periodic

Value of Discount is = (1000

Purchases amount = 1000 – 100 = 900 $
Periodic system Perpetual system
Purchases 900 Inventory 900
Ca h 900 Cash 900

B) cash Discount (Gross Method / Net Method ) ‫الخصم النقدي‬

. ‫خصم بٌدٌه البائع للمشتري اللً اشترع علً الحساب ( اجل) عشان ٌشجعه ٌدفع بدري‬
This incentive offers advantages to both parties. The purchaser saves money, and the
seller is able to shorten the operating cycle by converting the accounts receivable into
cash .

Credit term : on credit sales to motivate buyer to pay the amount early

% of discount 2/10.n/30 amount due

Num . of days

That’s mean if you pay during 10 days

we should discount 2 % of
net purchases (purchases – return ) and you must pay at 30 day

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 Accounting Two [CHAPTER ONE ( PART ONE )]

(using gross method )

Ex 6 : if x company Purchased purchases on account on 1/1 by 1000 $ and get 2/10
n.30 cash discount.
Journalize this transaction under perpetual and periodic if x pay at
A) 9/1 B) 12/1
Value of Discount is = (1000
1/1
Periodic system Perpetual system
Purchases 1000 Inventory 1000
A/P 1000 A/P 1000
A)Paying at 9 / 1 (in discount )
A/P 1000 A/P 1000
cash 980 cash 980
1000-20) 1000-20)
Discount 20 Inventory 20
B)Paying at 12/ 1( after discount )
A/P 1000 A/P 1000
cash 1000 cash 1000

Ex 7 : if x company Purchased purchases on account on 1/1 by 1000 $ and get 2/10

n.30 cash discount. 5/10 make return by 200 $
Journalize this transaction under perpetual and periodic if x pay at
A) 9/1 B) 12/1
Value of Discount is = (1000
1/1
Periodic system Perpetual system
Purchases 1000 Inventory 1000
A/P 1000 A/P 1000
A/P 200 A/P 200
Purchases 200 Inventory 200
Return
A)Paying at 9 / 1 (in discount )
A/P 800 A/P 800
cash 784 cash 784
Discount 16 Inventory 16
Net Purchase = 1000 – 200 = 800 Discount = 800 *2% = 16 cash = 800-16 = 784
B)Paying at 12/ 1( after discount )
A/P 1000 A/P 1000
cash 1000 cash 1000

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 Accounting Two [CHAPTER ONE ( PART ONE )]

(using Net method )

Ex 8 : if x company Purchased purchases on account on 1/1 by 1000 $ and get 2/10 n.30 cash
discount.
Journalize this transaction under perpetual and periodic if x pay at
A) 9/1 B) 12/1
- Net method : ‫بافترض ان فعال هيتم الذفع في موعذ الخصم فبسجل البضاعت من البذايت بسعرها بعذ الخصم و ان لم يتم‬
‫الذفع في ميعاد الخصم يعتبر خسارة‬
Value of Discount is = (1000
1/1
Periodic system Perpetual system
Purchases 980 Inventory 980
A/P 980 A/P 980
A)Paying at 9 / 1 (in discount )
A/P 980 A/P 980
cash 980 cash 980
1000-20 1000-20
B)Paying at 12/ 1( after discount )
A/P 980 A/P 980
Discount loss 20 Inventory 20
cash 1000 cash 1000

1 Freight terms of FOB Destination means that the seller pays the freight costs. T
2 Freight costs incurred by the seller on outgoing merchandise are an operating expense to T
the seller
3 A merchandising company has different types of adjusting entries than a service F
company
4 Gross profit is a measure of the overall profitability of a company. (business ) F
5 Freight costs paid by a seller on merchandise sold to customers will cause an increase B
a. in the selling expense of the buyer.
b.. in operating expenses for the seller.
c. to the cost of goods sold of the seller.
d. to a contra-revenue account of the seller.
6 Bryan Company purchased merchandise from Cates Company with freight terms of FOB B
shipping point. The freight costs will be paid by the
a. seller.
b.. buyer.
c. transportation company.
d. buyer and the seller.

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 Accounting Two [CHAPTER ONE ( PART ONE )]

7 If a company is given credit terms of 2/10, n/30, it should B

a. hold off paying the bill until the end of the credit period, while investing the money at
10% annual interest during this time.
b.. pay within the discount period and recognize a savings.
c. pay within the credit period but don't take the trouble to invest the cash while waiting
to
pay the bill.
d. recognize that the supplier is desperate for cash and withhold payment until the end of
the credit period while negotiating a lower sales price.

8 Jake’s Market recorded the following events involving a recent purchase of merchandise: D
Received goods for $20,000, terms 2/10, n/30.
Returned $400 of the shipment for credit.
Paid $100 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s merchandise inventory
a. increased by $19,208.
b. increased by $19,700.
c. increased by $19,306.
d. increased by $19,308.
(20.000-400+100-392)

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 Accounting Two [CHAPTER ONE ( PART ONE )]

Solution
5 - True. 2 - False. 3 - True. 4 - True. 1 - False. 6 - False. 7 - True 8- False.

Assignment

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