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Assessment two 15%
Semester
: Summer 2-2020
Year /
:
Course Title
: Financial Accounting
Course Code
: ACT300
Instructor
: Dr. Abdulhadi Ramadan & Dr. Muath Abdelqader
Date
:
Start Time
:
Exam Duration
:
No. of Pages
:
Version
2020
:
(includes cover page)
(Student Must Verify)
To be completed by the students
Students Name
:
Section
:
Major
:
Student ID:
Grading Scheme
Question
Earned Points
Max. Points
Question
1
6
2
7
3
8
4
9
5
10
Total Earned Points
Total Available Points
Earned Points
Max. Points
Instructor Signature
100
ACT 300- Financial Accounting – Summer 2020
Page 1|3
Question one: 20 marks
Discuss who uses the accounting information, explain the difference between internal
and external user.
Question Two: 80 marks ( 20 marks each)
Calculate the missing values:
At the beginning of 2019, Kuwait Company had total assets of $1,300,000 and total liabilities of
$740,000. Answer each of the following questions independently.
1. If total assets increased $120,000 and equity decreased $180,000
during the year, determine the amount of total liabilities at the end of
the year.
2. During the year, total liabilities decreased $150,000 and equity
increased $100,000. Compute the amount of total assets at the end of
the year.
3. If total assets decreased $200,000 and total liabilities increased
$110,000 during the year, determine the amount of equity at the end of
the year.
4. If the Total liabilities increased and the total equity decreased by the
same amount, what will be the net change in the total net assets
ACT 300- Financial Accounting – Summer 2020
Page 2|3
ACT 300- Financial Accounting – Summer 2020
Page 3|3
Chapter 2
The Recording Process
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After studying this chapter, you should be able to:
1. Explain what an account is and how it helps in the recording
process.
2. Define debits and credits and explain their use in recording
business transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the recording process.
5. Explain what a ledger is and how it helps in the recording process.
6. Explain what posting is and how it helps in the recording process.
7. Prepare a trial balance and explain its purposes.
Preview of Chapter 2
Learning Objective 1
Explain what an account is and how it
helps in the recording process.
1-4
The Account

An accounting record of increases
and decreases in a specific asset,
liability, or equity, item.

Debit = “Left”

Credit = “Right”
Account
An account can be
illustrated in a
T-account form.
Account Name
Debit / Dr.
Credit / Cr.
Learning Objective 2
Define debits and credits and explain their
use in recording business transactions
1-6
The Account
Debits and Credits
Double-entry system

Each transaction must affect two or more accounts to keep the basic
accounting equation in balance.

Recording done by debiting at least one account and crediting another.

DEBITS must equal CREDITS.
Debits and Credits
If Debit amounts are greater than Credit amounts, the
account will have a debit balance.
Account Name
Debit / Dr.
Credit / Cr.
Transaction #1
$10,000
$3,000
Transaction #3
8,000
Balance
$15,000
Transaction #2
Debits and Credits
If Debit amounts are less than Credit amounts, the
account will have a credit balance.
Account Name
Transaction #1
Balance
Debit / Dr.
Credit / Cr.
$10,000
$3,000
Transaction #2
8,000
Transaction #3
$1,000
Debits and Credits
Assets
Debit / Dr.
Credit / Cr.

Assets – Debits should exceed credits.

Liabilities – Credits should exceed
debits.

Normal balance is on the increase side.
Normal Balance
Chapter
3-23
Liabilities
Debit / Dr.
Credit / Cr.
Normal Balance
Chapter
3-24
Debits and Credits
Equity
Debit / Dr.

Issuance of share capital and
revenues increase equity (credit).

Dividends and expenses
decrease equity (debit).
Credit / Cr.
Normal Balance
Chapter
3-25
Retained Earnings
Share Capital
Debit / Dr.
Credit / Cr.
Debit / Dr.
Normal Balance
Chapter
3-25
Chapter
3-25
Dividends
Credit / Cr.
Debit / Dr.
Normal Balance
Normal Balance
Credit / Cr.
Chapter
3-23
LO 2
Debits and Credits
Revenue
Debit / Dr.
Credit / Cr.

The purpose of earning revenues is to benefit
the shareholders.

The effect of debits and credits on revenue
accounts is the same as their effect on equity.

Expenses have the opposite effect: expenses
decrease equity.
Normal Balance
Chapter
3-26
Expense
Debit / Dr.
Normal Balance
Chapter
3-27
Credit / Cr.
Debit/Credit Rules
Liabilities
Assets
Normal
Balance
Debit
Debit / Dr.
Credit / Cr.
Debit / Dr.
Normal
Balance
Credit
Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-24
Equity
Expense
Chapter
3-23
Debit / Dr.
Credit / Cr.
Debit / Dr.
Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-25
Revenue
Dividends
Chapter
3-27
Debit / Dr.
Debit / Dr.
Credit / Cr.
Credit / Cr.
Normal Balance
Normal Balance
Chapter
3-26
Chapter
3-23
LO 2
Debit/Credit Rules
Statement of Financial
Position
Asset
Debit
Credit
=
Liability + Equity
Income Statement
Revenue – Expense
Debit/Credit Rules
Question
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.
Debit/Credit Rules
Question
Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and equity.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.
Equity Relationships
Summary of Debit/Credit Rules
Relationship among the assets, liabilities and equity of a
business:
Illustration 2-12
The equation must be in balance after every transaction.
For every Debit there must be a Credit.
Learning Objective 3
Identify the basic steps in the recording
process
1-19
Steps in the Recording Process
Analyze each transaction
Enter transaction in a journal
Transfer journal information to
ledger accounts
Business documents, such as a sales slip, a check, a bill, or
a cash register tape, provide evidence of the transaction.
Learning Objective 4
Explain what a journal is and how it
helps in the recording process
1-21
Steps in the Recording Process
The Journal

Book of original entry.

Transactions recorded in chronological order.

Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit and
credit amounts can be easily compared.
Steps in the Recording Process
Journalizing – Entering transaction data in the journal.
Illustration: On September 1, shareholders’ invested €15,000 cash
in the corporation in exchange for share of stock, and Softbyte
purchased computer equipment for €7,000 cash.
General Journal
Date
Sept. 1
Account Title
Cash
Ref.
Debit
15,000
Share capital-ordinary
Equipment
Cash
Credit
15,000
7,000
7,000
Steps in the Recording Process
Simple and Compound Entries
Illustration: On July 1, Tsai Company purchases a delivery truck
costing NT$420,000. It pays NT$240,000 cash now and agrees to
pay the remaining NT$180,000 on account.
General Journal
Date
July 1
Account Title
Equipment
Ref.
Debit
Credit
420,000
Cash
240,000
Accounts payable
180,000
P2-1A P88
3e
P2-1A P84
P2-1A P84 Solution
P2-1A P84 Solution
Learning Objective 5
Explain what a ledger is and how it helps in the
recording process
1-29
Steps in the Recording Process
The Ledger

General Ledger contains the entire group of accounts
maintained by a company.
Steps in the Recording Process
Standard Form of Account
Learning Objective 6
Explain what posting is and how it helps
in the recording process
1-32
Steps
Posting –
process of
transferring
amounts from
the journal to
the ledger
accounts.
LO 6 Explain what posting is and how it helps in the recording process.
Posting
Question
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.
LO 6 Explain what posting is and how it helps in the recording process.
Chart of Accounts
Accounts and account numbers arranged in sequence in which
they are presented in the financial statements.
The Recording Process Illustrated
Follow these steps:
1. Determine what
type of account is
involved.
2. Determine what
items increased or
decreased and by
how much.
3. Translate the
increases and
decreases into
debits and credits.
LO 6
The Recording Process Illustrated
LO 6
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
The Recording Process Illustrated
Basel Company recorded the following transactions in a general journal
during the month of March. Post these entries to the Cash account.
Mar. 4
Cash
2,280
Service Revenue
Mar. 15
Mar. 19
Salaries and Wages Expense
Cash
Utilities Expense
Cash
2,280
400
400
92
92
LO 6
Learning Objective 7
Prepare a trial balance and explain its purposes
1-48
Trial Balance
Trial Balance
Limitations of a Trial Balance
The trial balance may balance even when
1. a transaction is not journalized,
2. a correct journal entry is not posted,
3. a journal entry is posted twice,
4. incorrect accounts are used in journalizing or posting, or
5. offsetting errors are made in recording the amount of a
transaction.
Revision
CH2
P2-2B P91
3e
P2-2B P91 Solution
P2-2B P91 Solution
P2-2B P91 Solution
P2-1B P91
3e
P2-1B P87
P2-1B P87 Solution
P2-1B P87 Solution
Posting Entries into the Ledger
Posting Entries into the Ledger
Posting Entries into the Ledger
Preparing Trial Balance
In-class Assignment
Review – Ch2
Illustration 2-13
Analyze each transaction
Enter transaction in a journal
Transfer journal information to
ledger accounts
E2-9 P82
P1-3B P43
P2-3A P85
P2-3A P85 Solution
P2-3A P85 Solution
Mid-term Question

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