American International University – Bangladesh

BBA 1102
Principles of Accounting
Session 9
What we have discussed in the last class….

● Unadjusted trial balance requires correction

● Correction in unadjusted trial balance is made proving necessary
adjusting entries
● Adjusting entries are transfer to the worksheet and the previous
balance is adjusted adding (if in the same side) or deducting (if the
figures are in different sides) adjustment figures
● A and E will always be with debit (Dr.) balance
● L and I will always be with credit (Cr.) balance
● In preparing formal financial statements, take help from the
worksheet prepared
● Worksheet is a working (rough) paper. It is not a step in
accounting cycle
● We have learned preparation of three financial statements, income
statement, owner’s equity statement, and Balance sheet
● Balance sheet should be prepared in classified format
(current/fixed or long-term assets and liabilities)
DISCUSSION TOPICS

Review: Adjusting the accounts

▪ Adjusting entries
▪ Worksheet
▪ Preparation of financial statements
 Assignment: Task 1

Prepare adjusting entries for the month.

Ken Ham started his own consulting firm, Hambone Consulting, on May 1, 2008. The trial balance at May 31 is as follows.

Debit Credit Other data:

Cash $5,700 - 1) $900 of supplies have been used during the month.
Accounts Receivable 6,000 - 2) Travel expense incurred but not paid on May 31, 2008, $250.
Supplies 1,900 - 3) The insurance policy is for 2 years.
Prepaid Insurance 3,600 - 4) $400 of the balance in the unearned service revenue account remains
Office Furniture 10,200 - unearned at the end of the month.
Accounts Payable - $4,500 5) May 31 is a Wednesday, and employees are paid on Fridays.
Unearned Service Revenue - 2,000 Hambone Consulting has two employees, who are paid $800 each for
K. Ham, Capital - 13,200 a 5-day work week.
Service Revenue - 12,000 6) The office furniture has a 5-year life with no salvage value. It is being
Salaries Expense 3,400 - depreciated at $170 per month for 60 months.
Rent Expense 900 - 7) Invoices representing $1,200 of services performed during the month
31,700 31,700 have not been recorded as of May 31.
 Solution: Case of Hambone Consulting
Adjusting Entries

1) $900 of supplies have been used during the month.

Hambone Consulting
Trial Balance Supplies expense Dr. 900
May 31, 2008 Supplies Cr. 900
Debit Credit
Cash $5,700 - 2) Travel expense incurred but not paid on May 31, 2008, $250.
Accounts Receivable 6,000 -
Supplies 1,900 - Travel expense Dr. 250
Prepaid Insurance 3,600 - Travel expense payable Cr. 250
Office Furniture 10,200 -
Accounts Payable - $4,500 3) The insurance policy is for 2 years.
Unearned Service Revenue - 2,000
K. Ham, Capital - 13,200 Insurance expense Dr. 150
Service Revenue - 12,000 Prepaid insurance Cr. 150
Salaries Expense 3,400 -
Rent Expense 900 - 4) $400 of the balance in the unearned service revenue account remains
31,700 31,700 unearned at the end of the month.

Unearned service revenue Dr. 1,600

Service revenue Cr. 1,600
 Solution: Case of Hambone Consulting
Adjusting Entries

5) May 31 is a Wednesday, and employees are paid on Fridays. Hambone

Hambone Consulting Consulting has two employees, who are paid $800 each for a 5-day work
Trial Balance week.
May 31, 2008
Debit Credit Salaries Dr. 1,600
Cash $5,700 - Salaries payable Cr. 1,600
Accounts Receivable 6,000 -
Supplies 1,900 - 6) The office furniture has a 5-year life with no salvage value. It is being
Prepaid Insurance 3,600 - depreciated at $170 per month for 60 months.
Office Furniture 10,200 -
Accounts Payable - $4,500 Depreciation Dr. 170
Unearned Service Revenue - 2,000
Accumulated depreciation Cr. 170
K. Ham, Capital - 13,200
Service Revenue - 12,000
7) Invoices representing $1,200 of services performed during the month
Salaries Expense 3,400 -
Rent Expense 900 - have not been recorded as of May 31.
31,700 31,700
Accounts receivable Dr. 1,200
Service revenue Cr. 1,200
 Assignment: Task 2
The Mound View Motel opened business on May 1, 2008. Its trial balance before
adjustment on May 31 is as follows.
Debit Credit
Cash $3,500 -
Supplies 2,200 -
Prepaid Insurance 2,280 -
Land 12,000 -
Lodge 60,000 -
Furniture 15,000 -
Accounts Payable - $4,800
Unearned Rent - 3,300 Prepare the worksheet and the
Mortgage Payable - 35,000 financial statements for Mound
Kevin Henry, Capital - 46,380 View Motel for the month.
Rent Revenue - 10,300
Advertising Expense 600 -
Salaries Expense 3,300 -
Utilities Expense 900 -
$99,780 $99,780
Other data:
(1) Prepaid insurance is a 1-year policy starting May 1, 2008.
(2) A count of supplies shows $750 of unused supplies on May 31.
(3) Annual depreciation is $3,000 on the lodge and $2,700 on furniture.
(4) The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
(5) Two-thirds of the unearned rent has been earned.
(6) Salaries of $750 are accrued and unpaid at May 31.
 Solution of the Assignment
Trial Balance
Trial Balance Adjustments
Adjustments Adjusted T.
Adjusted T. B.
B.
Dr. Cr. Dr. Cr. Dr. Cr.
Cash
Cash 3,500
3,500 -- - - 3,500 -
Supplies
Supplies 2,200
2,200 -- - 1,450 750 - Adjusting Entries
Prepaid Insurance
Prepaid Insurance 2,280
2,280 -- -- 190 2,090 -
Land
Land 12,000
12,000 -- - - 12,000 - Insurance expense Dr. 190
Lodge
Lodge 60,000
60,000 -- - - 60,000 -
Prepaid insurance Cr. 190
Furniture
Furniture 15,000
15,000 -- - - 15,000 -
Accounts Payable
Accounts Payable -- 4,800
4,800 - - - 4,800 Supplies expense Dr. 1,450
Unearned Rent
Unearned Rent -- 3,300
3,300 2,200 - - 1,100
Supplies Cr. 1,450
Mortgage Payable
Mortgage Payable -- 35,000
35,000 - - - 35,000
Kevin Henry,
Kevin Henry, Capital
Capital -- 46,380
46,380 - - - 46,380 Depreciation Expense Dr. 475
Rent Revenue
Rent Revenue -- 10,300
10,300 - 2,200 - 12,500 Acc. Dep. - Lodge Cr. 250
Advertising Expense
Advertising Expense 600
600 -- - - 600 -
Salaries Expense
Salaries Expense 3,300
3,300 -- 750 - 4,050 - Acc. Dep. - Furniture Cr. 225
Utilities Expense
Utilities Expense 900
900 -- - 900 - Interest expense Dr. 350
Insurance Expense
Insurance Expense -- -- 190 - 190 -
Supplies Expense - - 1,450 - 1,450 - Interest payable Cr. 350
Depreciation Expense - - 475 - 475 - Unearned rent Dr. 2,200
Acc. Dep. - Lodge - - - 250 - 250
Rent revenue Cr. 2,200
Acc. Dep. - Furniture - - - 225 - 225
Interest Expense - - 350 - 350 - Salaries expense Dr. 750
Interest Payable - - - 350 - 350
Salaries payable Cr. 750
Salaries Payable - - - 750 - 750

Total
Total 99,780
99,780 99,780
99,780 5,415 5,415 101,355 101,355
 Solution of the Assignment
Trial Balance Adjustments Adjusted T. B. Income Statement
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
A Cash 3,500 - - - 3,500 - - -
A Supplies 2,200 - - 1,450 750 - - -
A Prepaid Insurance 2,280 - - 190 2,090 - - -
A Land 12,000 - - - 12,000 - - -
A Lodge 60,000 - - - 60,000 - - -
A Furniture 15,000 - - - 15,000 - - -
L Accounts Payable - 4,800 - - - 4,800 - -
L Unearned Rent - 3,300 2,200 - - 1,100 - -
L Mortgage Payable - 35,000 - - - 35,000 - -
OE Kevin Henry, Capital - 46,380 - - - 46,380 - -
I Rent Revenue - 10,300 - 2,200 - 12,500 - 12,500
E Advertising Expense 600 - - - 600 - 600 -
E Salaries Expense 3,300 - 750 - 4,050 - 4,050 -
E Utilities Expense 900 - - 900 - 900 -
E Insurance Expense - - 190 - 190 - 190 -
E Supplies Expense - - 1,450 - 1,450 - 1,450 -
E Depreciation Expense - - 475 - 475 - 475 -
A– Acc. Dep. - Lodge - - - 250 - 250 - -
A– Acc. Dep. - Furniture - - - 225 - 225 - -
E Interest Expense - - 350 - 350 - 350 -
L Interest Payable - - - 350 - 350 - -
L Salaries Payable - - - 750 - 750 - -
OE Net Profit - - - - - - 4,485 -
Total 99,780 99,780 5,415 5,415 101,355 101,355 12,500 12,500
 Solution of the Assignment
Trial Balance Adjustments Adjusted T. B. Income Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
A Cash 3,500 - - - 3,500 - - - 3,500 -
A Supplies 2,200 - - 1,450 750 - - - 750 -
A Prepaid Insurance 2,280 - - 190 2,090 - - - 2,090 -
A Land 12,000 - - - 12,000 - - - 12,000 -
A Lodge 60,000 - - - 60,000 - - - 60,000 -
A Furniture 15,000 - - - 15,000 - - - 15,000 -
L Accounts Payable - 4,800 - - - 4,800 - - - 4,800
L Unearned Rent - 3,300 2,200 - - 1,100 - - - 1,100
L Mortgage Payable - 35,000 - - - 35,000 - - - 35,000
OE Kevin Henry, Capital - 46,380 - - - 46,380 - - - 46,380
I Rent Revenue - 10,300 - 2,200 - 12,500 - 12,500 -
E Advertising Expense 600 - - - 600 - 600 - - -
E Salaries Expense 3,300 - 750 - 4,050 - 4,050 - - -
E Utilities Expense 900 - - 900 - 900 - - -
E Insurance Expense - - 190 - 190 - 190 - - -
E Supplies Expense - - 1,450 - 1,450 - 1,450 - - -
E Depreciation Expense - - 475 - 475 - 475 - - -
A– Acc. Dep. - Lodge - - - 250 - 250 - - - 250
A– Acc. Dep. - Furniture - - - 225 - 225 - - - 225
E Interest Expense - - 350 - 350 - 350 - - -
L Interest Payable - - - 350 - 350 - - - 350
L Salaries Payable - - - 750 - 750 - - - 750
OE Net Profit - - - - - - 4,485 - - 4,485
Total 99,780 99,780 5,415 5,415 101,355 101,355 12,500 12,500 93,340 93,340
 Solution of the Assignment

Mount View Motel Mount View Motel

Income Statement Owner’s Equity Statement
For the month ended May 31, 2008 For the month ended May 31, 2008
Amount Amount Amount
Revenue: Capital $46,380
Rent revenue $12,500 Add: Net profit 4,485
Expenses:
Advertising Expense $ 600
Salaries Expense 4,050 Closing equity $50,865
Utilities Expense 900
Insurance Expense 190
Supplies Expense 1,450
Depreciation Expense 475
Interest Expense 350
Total Expenses 8,015
Net Profit $4,485
 Solution of the Assignment

Mount View Motel

Balance Sheet
As on May 31, 2008
Assets: Liabilities and Owner’s Equity:
Current Assets – Current Liability –
Cash $3,500 Accounts Payable $4,800
Office Supplies 750 Unearned Rent 1,100
Prepaid Insurance 2,090 Interest Payable 350
Total current assets $ 6,340 Salaries Payable 750
Fixed Assets – Total current liability $ 7,000
Land 12,000
Lodge $60,000 Long Term Liability –
Less: Acc. Dep. 250 Mortgage Payable 35,000
Net Lodge 59,750
Furniture $15,000
Less: Acc. Dep. 225
Net Equipment 14,775 Owner’s Equity 50,865
Total fixed assets 86,525
Total Assets $92,865 Total Liability and Owner’s Equity $92,865
 In-class Practice 15
minutes

Prepare Adjusting Entries (Accounting Period 1 Year)

Ryan Company has the following balances in selected accounts on December 31, 2008.
Equipment 7,000
Notes Payable 25,000
Prepaid Insurance 2,520
Supplies 2,650
Unearned Consulting Revenue 40,000

All the accounts have normal balances. The information below has been gathered at December 31, 2008.
1. Ryan Stiles Company borrowed $25,000 by signing a 12%, one-year note on October 1, 2008.
2. A count of supplies on December 31, 2008, indicates that supplies of $700 are on hand.
3. Depreciation on the equipment for 2008 is $2,000.
4. Ryan Stiles Company paid $2,520 for 12 months of insurance coverage on August 1, 2008.
5. On December 1, 2008, Ryan Stiles collected $40,000 for consulting services to be performed from December 1,
2008, through March 31, 2009.
6. Ryan Stiles performed consulting services for a client in December 2008. The client will be billed $5,300.
7. Ryan Stiles Company pays its employees total salaries of $10,000 every Monday for the preceding 5-day week
(Monday through Friday). On Monday, December 30, employees were paid for the week ending December 27. All
employees worked the last 2 days of 2008.
 Quiz 2
24.02.2021 (Wednesday)
Lectures 6, 7, 8, 9 [Adjusting the Accounts]