As the accountant for ABC Consulting, you are tasked with preparing the company’s income statement for the year 2022 based on the following information taken from the trial balance:

Accounting by Geoffrey

Question 1: (5 Marks)

Sarah owns a boutique that sells women’s clothing and accessories. She keeps track of her business transactions using a journal.

  • On March 1, Sarah invested SAR 10,000 cash in her business to start operations. Prepare the journal entry.
  • On March 5, Sarah purchased inventory for SAR 5,000 on credit from a supplier. Prepare the journal entry.
  • On March 10, Sarah sold SAR 3,000 worth of inventory for cash. Prepare the journal entry.
  • On March 15, Sarah paid SAR 1,000 cash for rent for the month. Prepare the journal entry.
  • On March 20, Sarah purchased office supplies for SAR 200 cash. Prepare the journal entry.
  • On March 25, Sarah received a bill for SAR 800 for advertising expenses incurred during the month. Prepare the journal entry.
  • On March 31, Sarah paid SAR 4,000 cash to the supplier for the inventory purchased on credit earlier in the month. Prepare the journal entry.

Instructions: Prepare the journal entry in SAR currency for each of the above transactions.

Question 2: (5 Marks)

Omar owns a catering service company that provides food and beverage services for events such as weddings and corporate events. He uses the accrual basis of accounting to record his company’s financial transactions. Here are some of the transactions that occurred during the year:

  • On January 1, Omar signs a contract with a client to provide catering services for their wedding on July 1. The total contract amount is SAR 25,000. When should Omar recognize the revenue for this transaction under the accrual basis?
  • On July 1, Omar provides catering services to the client from the January 1 contract. The client pays the full amount of SAR 25,000 on the day of the event. When should Omar recognize the revenue for this transaction under the accrual basis?
  • On October 1, Omar provides catering services to a corporate client and invoices them for SAR 12,000. The payment is not received until November 15. When should Omar recognize the revenue for this transaction under the accrual basis?

Question 3:(5 Marks)

ABC Consulting is a company that provides consulting services to clients in various industries. The company also rents out a portion of its office space to other businesses. As the accountant for ABC Consulting, you are tasked with preparing the company’s income statement for the year 2022 based on the following information taken from the trial balance:

  • Consulting revenue: SAR70,000
  • Rental revenue: SAR30,000
  • Supplies expense: SAR5,000
  • Rent expense: SAR20,000
  • Wages expense: SAR30,000