What is the accrual basis of accounting? When should revenue and expense be recognized in the accrual basis? Explain the purpose and the importance of the income statement.
Q1– Provide an example of each title here and then record the journal entries (2 Marks).
Following is the first given answer.
1-Purchasing Equipment for cash
Given answer:
ABC company purchased equipment for SAR20,000 cash .
Equipment 20,000
Cash 20,000
2-Issuing common stocks receiving cash.
3-Providing service receiving cash.
4-Purchasing supplies on credit.
5-Borrowing money from a bank.
6-Paying employees their salaries.
Q2– What is the accrual basis of accounting? When should revenue and expense be recognized in the accrual basis? Provide an example. (1 Mark).
Q3– On your own words, explain the purpose and the importance of the income statement, and prepare the income statement for ABC company based on the following information taken from the trial balance in 2019 (2 Marks)
| Consulting revenue | SAR70,000 | |
| Rental revenue | 30,000 | |
| Supplies expense | 5,000 | |
| Rent expense | 20,000 | |
| Wages expense | 30,000 |
DETAILED ASSIGNMENT
