Accrual Method of Accounting for Al Majida Company Assessment Answer

Q1 A

. Al Madina company is a toy manufacturing company. The company raises its additional capital of OMR 500,000 by issuing shares. The company’s total expenses are OMR 35,000 and earns a revenue of OMR 80,000. They sold merchandise of OMR 800 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December.

From the above scenario

Identify and explain which accounting principles / concept where implemented. [0.5+ 1.5 Marks]
Identify, which form of business is suitable for them and give any two advantages. [1+1Mark]
Find out the profit of the company.[1 Mark] 1

B Mr Majid started a business in United Arab Emirates (UAE).For the business he purchased a factory building for …… 100,000. Also, he purchased raw materials worth200,000 to start the

production. He recruited 10 employees for his company who are very loyal and honest. He also bought 10 personal computers for ……..3400, 15 office chairs and tables for ……1200 and other machinery for the business for8600.

If he follows Money measurement concept of accounting, then how he will record the business transactions?[1Mark]
What form of business Mr Majid had started?[0.5 Mark]
Identify and list out the business transactions in the above paragraph and state at what amount they will be recorded in the books of accounts.
Identify the internal or external users of financial information mentioned in the above paragraph.[1 Mark]

Q2.

Show the effect of following transactions on accounting equation. [5 Marks] 2020

Jan. 1 Salman started his business with cash OMR 100,000.

Jan. 5 Purchased good for OMR 5,000 and paid OMR 3,000 cash but remaining on account. Jan. 10 Paid transportation on goods purchased OMR 1,000.

Jan. 18 Sold goods to Rashid on credit basis for OMR 8,000 costing OMR 4,000. Jan.30 Paid rent for the month OMR 4,000.

Mr. Abdullah started a laundry business with Capital of OMR 8,100 and the following items are given:

Accounts Receivable-Omar Store OMR 5,500; Store Furniture OMR 3,000 Unearned Laundry Income OMR 600; Supplies Expense OMR 250

Notes Payable OMR 2,400; Rent Received in AdvanceOMR600 Accounts Receivable-Sohar College OMR 2,000

Cash on Hand -OMR 10,050; Utilities Expense OMR 200 Accounts Payable-Fashion Wear Trading Company OMR 8,850 Salary Expense -OMR 1,000; Discount received -OMR 500; Laundry Income OMR 7,500

Arrange the above items as Assets, Liabilities, Revenue and Expenses.

Apply the items into an accounting equation and prove that accounting equation is always equal. [2.5 Marks]

Q3 Ms. Marwa started a flower shop during May 2018, Prove the accounting equation by balancing the following items.

Capital OMR 25,400; Accounts Payable OMR 2,600; Fixtures OMR 2,800; Car OMR 3,900; Stock of goods OMR 4,550; Accounts Receivable OMR 2,780; Cash at bank OMR 6,750; Cash in hand OMR 7,220.[4 Marks]

During the first week of May 2018, if the following transaction takes place how the accounting equations changes:

She bought extra stock for goods OMR 500 on Credit.[3 Marks]
She bought a computer by cash OMR 750.[3 Marks]

You are required to prove the accounting equation as on 7th May 2018 after completing the above transactions. [Use the following tables]

Assets	Amount in OMR	Capital + Liabilities	Amount in OMR






Total:		Total:

She bought extra stock for goods OMR 500 on Credit.

Assets	Amount in OMR	Capital + Liabilities	Amount in OMR






Total:		Total:

She bought a computer by cash OMR 750.

Assets	Amount in OMR	Capital + Liabilities	Amount in OMR






Total:		Total:

Q4 Journalize the following transactions in the books of a trader for the month of Feb. 2020. [10 Marks]

2020

1 Feb - Started business with OMR 100,000 and from which paid into bank OMR 30,000.

5 Feb - Bought on credit furniture for OMR 5,000 and Machine for OMR 4,000.

8 Feb - Purchased goods for OMR 20,000 on credit.

10 Feb - Sold goods to Ahmed on cash for OMR 15,000.

15 Feb - Amount withdrawn from bank for personal use OMR 3,000.

18 Feb - Deposited into bank OMR 5,000.

20 Feb - Sold goods to Ali for OMR 10,000 and received OMR 7,000 in cash but remaining on account.

22 Feb - Paid OMR 1,000 for stationary.

25 Feb - Paid rent OMR 500.

28 Feb - Sold furniture on account for OMR 1,500.

Q5 Post the transactions given in Q4 to the proper ledger accounts.

Answer

Question 1

The accounting principle implemented is the Accrual method of accounting. Accrual method of accounting records the revenues and expenses when they are incurred. The recording of the transaction is not dependent upon exchange of cash. In the given situation the sales was made in December for 800 OMR but the cash for the sales will be received after 30 days. However, using the accrual method of accounting the sales was recorded in the month of December even though the cash was received in next month.
The Private Ltd. company form is suitable for the business of Al Majida. The business form allows the business to raise funds from friends, family members. The private limited has limited paper formalities. The shareholders have limited liabilities towards the debts of the company. Later if the company grows further and needs more funding it can change to public limited company.
Profit of the company:

Revenue 80,000

Less: Expenses 35,000

Profit 45,000

The money measurement concept says that business should record in the books of accounts only those business transactions that can be measured in terms of money. Thus the accounting transactions focus only on quantitative information and ignores non quantitative information. For example the loyal and honest employees recruited is ignored in accounting transactions unless payment s made to them for salaries while it is very important for business success. Mr. Majid will record all the business information which is presented in monetary terms.
Mr. Majid had started with proprietorship business. He is the single owner of the business and has invested his own money in the business. He is the sole owner of the business and responsible for all the liabilities of the business.
Business transactions and the amount are:

Purchase of factory building ……….100,000

Purchase of raw Material……………..200,000

Purchase of 10 personal computers ….3,400

Purchase of office chairs and tables ……..1,200

Purchase of machinery ………………….8,600

The internal users of financial information are:
Mr. Majid
Employees of the company
Investors in business(if any)

External users are:

Sellers to the company
Government authorities
Prospective customers
Banks/lenders

A Effect of the transaction on accounting equation:

	Assets	Amount (OMR)	=	Capital + liabilities	Amount (OMR)
1-Jan	cash (+)	100,000		Capital (+)	100,000
5-Jan	Goods (+)	5,000		payable (+)	2,000
	Cash (-)	3,000
10-Jan	Cash (-)	1,000		Capital (-)	1000
18-Jan	Goods (-)	4,000		Capital (+)	4,000
	Receivables (+)	8,000
30-Jan	Cash(-)	4,000		Capital (-)	4000

Assets	Liabilities	Revenues	Expenses
	Capital
Accounts Receivables (Omar store)	Unearned laundry Income	Discount recd	Supplies expense
Store Furniture	Notes payable	Laundry Income	Utilities expense
Accounts Receivables (Sohar College)	Rent Received in Advance		Salary expense
Cash on Hand	Accounts payables (Fashion wear trading company)

Assets	Amount	=	Liabilities+ Capital	Amount	(+Revenues- Expenses)	Amount
			capital	8100
Accounts Receivables (Omar store)	5,500		Unearned laundry Income	600
Store Furniture	3,000				Supplies expense	-250
			Notes payable	2400
Accounts Receivables (Sohar College)	2000		Rent recd in advance	600
Cash on Hand	10,050		Accounts payables (Fashion wear trading company)	8850
					utilities Expense	-200
					Salaries expense	-1000
					Discount recd	500
					Laundry Income	7500
Total	20,550			20,550		6,550

Q3 You are required to prove the accounting equation as on 7th May 2018 after completing the above

transactions.

Assets	Amount (OMR)	=	Capital + liabilities	Amount (OMR)
Cash in Hand	7,220		capital	25,400
Fixtures	2,800		Accounts payable	2,600
car	3900
Goods	4,550
Accounts Receivables	2,780
cash at bank	6,750
Total	28,000		Total	28,000

She bought extra stock for goods OMR 500 on Credit.

Assets	Amount (OMR)	=	Capital + liabilities	Amount (OMR)
Cash in Hand	7,220		capital	25,400
Fixtures	2,800		Accounts payable	3,100
car	3900
Goods	5,050
Accounts Receivables	2,780
cash at bank	6,750
Total	28,500		Total	28,500

She bought a computer by cash OMR 750.

Assets	Amount (OMR)	=	Capital + liabilities	Amount (OMR)
Cash in Hand	6,470		capital	25,400
Fixtures	2,800		Accounts payable	3,100
car	3900
Goods	5,050
Accounts Receivables	2,780
cash at bank	6,750
Computer	750
Total	28,500		Total	28,500

Q4 Journalize the following transactions in the books of a trader for the month of Feb. 2020:

Journal Entries

Date	Account	Amount Dr. (In OMR)	Amount Cr. (In OMR)

1-Feb	Cash on Hand a/c	70,000
	Cash At Bank	30,000
	Capital A/c		100,000
	(Started business with capital)

5-Feb	Furniture A/c	5,000
	Machinery A/c	4,000
	Accounts payables A/c		9,000
	(Purchased furniture and Machine on credit)

8-Feb	Purchases A/c	20,000
	Accounts payables A/c		20,000
	(Purchase of goods on credit)

10-Feb	Cash at hand A/c	15,000
	Revenue A/c		15,000
	(Sold goods in cash)


15-Feb	Withdrawal a/c	3,000
	Cash at bank A/c		3,000
	(Sales for cash)

18-Feb	Cash at bank	5,000
	Cash at Hand A/c		5,000
	(Sales to Ahmed)

20-Feb	Accounts Receivables	3,000
	Cash A/c	7,000
	Revenue A/c		10,000
	(Sold goods to Ali , recd cash and remaining on account)
22-Feb	Stationary expense	1,000
	Cash A/c		1,000
	(Paid for Stationary)

25-Feb	Rent Expense	500
	Cash A/c		500
	(Paid for Rent)

28-Feb	Accounts receivables	1500
	Furniture		1500
	(Sold furniture on account)

Q5 Post the transactions given in Q4 to the proper ledger accounts:

A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
			1-Feb	Cash at Hand A/c	70,000
			1-Feb	Cash at Bank A/c	30,000
					100,000

Cash at Hand A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
1-Feb	Capital A/c	70,000
10-Feb	Revenue A/c	15,000	18-Feb	Cash at Bank	5,000
20-Feb	Revenue A/c	7,000	22-Feb	Stationary	1,000
			25-Feb	Rent Expense	500

		92,000			6,500

Cash at Bank A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
1-Feb	Capital A/c	30,000
			15-Feb	Withdrawal	3,000
18-Feb	Cash At hand	5,000

		35,000			3,000
Furniture A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
5-Feb	Accounts Payable	5,000	28-Feb	Accounts Receivables	1,500

		5,000			1,500

Machinery A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
5-Feb	Accounts Payable	4,000

		4,000

With drwawl A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
15-Feb	Cash at Bank A/c	3,000


		3,000			-

Accounts Receivables
Date	Description	Amount DR.	Date	Description	Amount Cr.
25-Feb	Revenue A/c	3,000
28-Feb	Furniture A/c	1,500

		4,500			-

Accounts Paybales
Date	Description	Amount DR.	Date	Description	Amount Cr.
			5-Feb	Furniture A/c	5,000
			5-Feb	Machinery A/c	4,000
			8-Feb	Purchases	20,000

					29,000

Purchases A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
8-Feb	Accounts Payables	2,000


		92,000			-

Revenue A/c
Date	Description	Amount DR.	Date	Description	Amount Cr.
			10-Feb	Cash at Hand A/c	15,000
			20-Feb	Cash at Hand A/c	7,000
			20-Feb	Accounts Receivables	3,000
		-			25,000

Staionary Expense
Date	Description	Amount DR.	Date	Description	Amount Cr.
22-Feb	Cash at HandA/c	1,000


		1,000			-


Rent Expense
Date	Description	Amount DR.	Date	Description	Amount Cr.
25-Feb	Cash at Hand A/c	500


		500			-

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Accrual Method of Accounting for Al Majida Company Assessment Answer

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