Accounting Journal Entries and Adjusting Entries: ABC Sole Proprietorship, Accounting Theory Principles and Assumptions, Financial Statements, and Cost of Goods Sold Calculation

QUESTION

Q1. In January 2023, ABC Sole Proprietorship Conducted the Following Transactions (Amounts in Saudi Riyal)

1. Owner paid the capital for 5,000,000 in cash.
2. It purchased equipment for 500,000 in cash.
3. It purchased inventory for 2,000,000 in cash.
4. It Sold inventory for 1,000,000 in cash.
5. It Sold inventory for 200,000 on credit.
6. It paid salaries for 250,000 in cash.
7. It borrowed 500,000 from Riyadh bank by signing a promissory note.
8. It purchased supplies for 100,000 on credit.
9. It paid for the purchased supplies on credit.
10. It collected the sold inventory on credit.

Required: Pass the Above Transactions in the Journal Using the Accrual Accounting

Answers:

 

Q2.  Discuss The Principles And Assumptions of The Accounting Theory.

Answer:

  Q3. In December31, 2022 the accountant discovered the following information:

1. Supplies purchased during the year and recorded as an assets were 20,000. As the Physical counting indicated that end of period supplies were 5,000.
2. Cash received for 5,000 during the year against services not yet provided to the clients and recorded as earned revenues.
3. Salaries for 25,000 incurred in the year but unpaid and unrecorded.
4. Revenues for 50,000 earned in the year but uncollected and unrecorded.
5. The annual Depreciation expenses for 10,000 unrecorded.

Required:  Pass the required Adjusting Entries for the above Information.

Answer:

Q4.  Below Is The Adjusted Trail Balance For ABC Corporation As of December 31 2022:

Items	Debit	Credit
Cash	1,000,000
Accounts Receivable	5,000,000
Supplies	100,000
Equipment	1,000,000
Accumulated Depreciation –Equipment		200,000
Accounts Payable		100,000
Notes Payable		500,000
Unearned Revenues		100,000
Common Stock		4,600,000
Retained Earnings		300,000
Dividends	100,000
Sales		10,000,000
Salaries Expenses	1,000,000
Rent Expenses	500,000
Cost Of Goods Sold	7,000,000
Depreciation Expenses	100,000
Total	15,800,000	15,800,000

 

Required: Prepare the Following Statements

1. Income Statement
2. Retained Earnings Statement
3. Balance Sheet Statement

Answer

 

Q5.  The following information extracted from the cost records during January 2023

Dates	Particular	Units	Cost per unit	Total cost
January 1	Begging inventory	150	20	3,000
January 10	Purchase	50	25	1,250
January 20	Purchase	100	30	3,000
January 25	Sales	200

 

Required:

1. Compute The Cost Of Goods Sold On   January 25, 2023  Using  First In First Out, Last In First Out And Weighted  Average Methods

Answer:

ANSWER

Accounting Journal Entries and Adjusting Entries: ABC Sole Proprietorship, Accounting Theory Principles and Assumptions, Financial Statements, and Cost of Goods Sold Calculation

Q1. Journal Entries for ABC Sole Proprietorship

Q2. Principles and Assumptions of Accounting Theory

Accounting theory is based on several principles and assumptions that guide the preparation and presentation of financial statements. Some key principles and assumptions include:

1. Accrual Principle: This principle states that transactions and events are recorded in the accounting records when they occur, not necessarily when the cash is received or paid. It emphasizes the matching of revenues and expenses in the period to which they relate.

2. Going Concern Assumption: This assumption assumes that a business will continue to operate indefinitely, unless there is evidence to the contrary. It allows for the preparation of financial statements under the assumption that the business will continue its operations in the foreseeable future.

3. Historical Cost Principle: According to this principle, assets and liabilities are recorded at their original historical cost, which is the amount paid or received at the time of acquisition. It provides a reliable and objective basis for recording transactions.

4. Revenue Recognition Principle: This principle states that revenue should be recognized when it is earned and realizable, regardless of when the cash is received. It ensures that revenues are recognized in the appropriate accounting period when the performance obligation is satisfied.

5. Matching Principle: The matching principle requires that expenses be recorded in the same accounting period as the related revenues to which they contribute. It ensures that the costs incurred to generate revenue are recognized in the same period, facilitating the matching of expenses and revenues.

6. Consistency Principle: The consistency principle requires that accounting methods and procedures should be applied consistently over time. It ensures comparability of financial statements and facilitates meaningful analysis and decision-making.

These principles and assumptions provide a foundation for financial reporting and help ensure the reliability, comparability, and relevance of financial information.

Q3. Adjusting Entries for December 31, 2022

Q4. Financial Statements

Q5. Cost of Goods Sold on January 25, 2023

1. First In First Out (FIFO) Method

Cost of Goods Sold = 150 units x $20 (from beginning inventory) + 50 units x $25 (from the first purchase) = $3,000 + $1,250 = $4,250

2. Last In First Out (LIFO) Method

Cost of Goods Sold = 100 units x $30 (from the second purchase) + 100 units x $25 (from the first purchase) = $3,000 + $2,500 = $5,500

3. Weighted Average Method

Total cost = $3,000 (beginning inventory) + $1,250 (first purchase) + $3,000 (second purchase) = $7,250

Cost per unit = Total cost / Total units = $7,250 / (150 + 50 + 100) = $25.83 (rounded)
Cost of Goods Sold = 200 units x $25.83 = $5,166 (rounded)

Note: The cost of goods sold calculation assumes that all units sold are from either the beginning inventory or the purchases made during January 2023.