American International University – Bangladesh

BBA 1102
Principles of Accounting
Session 8
What we have discussed in the last class….

● Matching principle indicates income should match with expenses

to identify profit
● Revenue recognition principle indicate that the revenue should be
recognized when it has been earned and not when the cash is
received.
● Historical cost principle indicate that the asset should be recorded
at its cost price
● In doing adjusting entries, you should identify whether relevant
accounts are over/under stated.
DISCUSSION TOPICS

Adjusting the accounts

▪ Adjusting entries
▪ Preparation of ten-column worksheet
▪ Adjusted trial balance
▪ Income statement
▪ Balance sheet
 Assignment
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
Mortgage Payable - 35,000
Kevin Henry, Capital - 46,380 Prepare the adjusting entries for
Rent Revenue - 10,300 Mound View Motel for the month.
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
(1) Prepaid insurance is a 1-year policy starting May 1, 2008.
Insurance expense Dr. 190
Mound View Motel Prepaid insurance Cr. 190
Trial Balance
May 31, 2008 (2) A count of supplies shows $750 of unused supplies on May 31.
Supplies expense Dr. 1,450
Debit Credit
Cash $3,500 - Office supplies Cr. 1,450

Adjusting Entries
Supplies 2,200 - (3) Annual depreciation is $3,000 on the lodge and $2,700 on furniture.
Prepaid Insurance 2,280 -
Land 12,000 - Depreciation Expense Dr. 475
Lodge 60,000 - Acc. Dep. - Lodge Cr. 250
Furniture 15,000 - Acc. Dep. - Furniture Cr. 225
Accounts Payable - $4,800 (4) The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
Unearned Rent - 3,300
Interest expense Dr. 350
Mortgage Payable - 35,000
Interest payable Cr. 350
Kevin Henry, Capital - 46,380
Rent Revenue - 10,300 (5) Two-thirds of the unearned rent has been earned.
Advertising Expense 600 -
Unearned rent Dr. 2,200
Salaries Expense 3,300 -
Rent revenue Cr. 2,200
Utilities Expense 900 -
$99,780 $99,780 (6) Salaries of $750 are accrued and unpaid at May 31.
Salaries expense Dr. 750
Salaries payable Cr. 750
 Solution of the Practice Case
Identify which accounts will be affected for the following adjustments? Also mention whether the account is overstated (OS) or understated
(US) for the given adjustments. [To conclude your answer use the following trial balance and the given format]

Debit Credit
Cash 3,700 -
Supplies 2,200 -
Equipment 15,000 - Answer Table
Account Receivable 3,000 -
Notes Payable - 3,000 Affected account 1 Status Affected account 2 Status
Service Revenue - 12,000
Unearned Revenue - 2,100 1. Supplies  OS  US Supplies expense  OS  US
Prepaid Insurance 5,000 -
Salary 6,200 - 2. Prepaid insurance  OS  US Insurance expense  OS  US

Adjustment information: 3. Account receivable  OS  US Service revenue  OS  US

1. Supplies on hand $800
2. Amount of unexpired insurance is $600 4. Equipment  OS  US Furniture  OS  US
3. Service provided but unbilled and unrecorded $1,200
4. Purchase of furniture has been incorrectly recorded 5. Unearned revenue  OS  US Service revenue  OS  US
as equipment by $900
5. Unearned service revenue has been earned by $550
at the end of the period
 Review: Case of Teletalk Company

TeleTalk Company
Trial Balance (INCOMPLETE)
as on March 31, 2020 Adjusting Entries
Debit Credit Amount ($)
Cash $1,500 - Date Account titles Ref.
Accounts Receivable 15,500 - Debit Credit
Office Supplies 7,700 - Mar 31(1) Supplies expense Dr. 4,700
Prepaid Insurance 5,000 -
Office supplies Cr. 4,700
Building 20,000 -
Equipment 13,000 - 31(2) Insurance expense Dr. 3,500
Acc. Dep - Equipment - $3,000
Prepaid insurance Cr. 3,500
12% Mortgage Payable - 20,000
Accounts Payable - 5,500 31(3) Interest expense Dr. 600
Service Revenue - 26,500 Interest payable Cr. 600
Rental Income - 5,000
Capital - 30,200 31(4) Accounts Receivable Dr. 2,500
Drawing 5,000 - Service Revenue Cr. 2,500
Salary 15,000 -
31(5) Depreciation Expense Dr. 500
Repair Expense 7,500 -
Total $90,200 $90,200 Accumulated Depreciation Cr. 500
 Adjusted Trial Balance
Trial Balance Adjustments
Dr. Cr. Dr. Cr.
Cash $1,500 -
Accounts Receivable 15,500 -
Adjusting Entries
Office Supplies 7,700 - - 4,700
Prepaid Insurance 5,000 - Supplies expense Dr. 4,700
Building 20,000 - Office supplies Cr. 4,700
Equipment 13,000 -
Acc. Dep - Equipment - $3,000 Insurance expense Dr. 3,500
12% Mortgage Payable - 20,000 Prepaid insurance Cr. 3,500
Accounts Payable - 5,500 Interest expense Dr. 600
Service Revenue - 26,500
Interest payable Cr. 600
Rental Income - 5,000
Capital - 30,200 Accounts Receivable Dr. 2,500
Drawing 5,000 - Service Revenue Cr. 2,500
Salary 15,000 -
Depreciation Expense Dr. 500
Repair Expense 7,500 -
Supplies Expense - - 4,700 - Accumulated Depreciation Cr. 500

Total $90,200 $90,200

 Adjusted Trial Balance
Trial
Trial Balance
Balance (T. B.) Adjustments Adjusted T. B.
Dr. Cr. Dr. Cr. Dr. Cr.
Cash $1,500 - - - $1,500 -
Accounts Receivable 15,500 - 2,500 - 18,000 -
Adjusting Entries
Office Supplies 7,700 - - 4,700 3,000 -
Prepaid Insurance 5,000 - - 3,500 1,500 - Supplies expense Dr. 4,700
Building 20,000 - - - 20,000 - Office supplies Cr. 4,700
Equipment 13,000 - - - 13,000 -
Acc. Dep - Equipment - $3,000 - 500 - $3,500 Insurance expense Dr. 3,500
12% Mortgage Payable - 20,000 - - - 20,000 Prepaid insurance Cr. 3,500
Accounts Payable - 5,500 - - - 5,500 Interest expense Dr. 600
Service Revenue - 26,500 - 2,500 - 29,000
Interest payable Cr. 600
Rental Income - 5,000 - - - 5,000
Capital - 30,200 - - - 30,200 Accounts Receivable Dr. 2,500
Drawing 5,000 - - - 5,000 - Service Revenue Cr. 2,500
Salary 15,000 - - - 15,000 -
Depreciation Expense Dr. 500
Repair Expense 7,500 - - - 7,500 -
Supplies Expense - - 4,700 - 4,700 - Accumulated Depreciation Cr. 500
Insurance Expense - - 3,500 - 3,500 -
Interest Expense - - 600 - 600 -
Interest Payable - - - 600 - 600
Depreciation - - 500 - 500 -

Total $90,200 $90,200 $11,800 $11,800 $93,800 $93,800

 Performance evaluation
Trial Balance (T. B.) Adjustments Adjusted T. B.
Dr. Cr. Dr. Cr. Dr. Cr.
Cash $1,500 - - - $1,500 - Profit for the period
Accounts Receivable 15,500 - 2,500 - 18,000 - [Based on original Trial Balance]
Office Supplies 7,700 - - 4,700 3,000 -
Prepaid Insurance 5,000 - - 3,500 1,500 - Total Income
Building 20,000 - - - 20,000 - Service Revenue $26,500
Equipment 13,000 - - - 13,000 - Rental Income $ 5,000
Acc. Dep - Equipment - $3,000 - 500 - $3,500 $31,500
12% Mortgage Payable - 20,000 - - - 20,000
Accounts Payable - 5,500 - - - 5,500 Total Expenses
Service Revenue - 26,500 - 2,500 - 29,000 Salary $15,000
Rental Income - 5,000 - - - 5,000 Repair expenses $ 7,500
Capital - 30,200 - - - 30,200 $22,500
Drawing 5,000 - - - 5,000 - Net profit $ 9,000
Salary 15,000 - - - 15,000 -
Repair Expense 7,500 - - - 7,500 -
Supplies Expense - - 4,700 - 4,700 -
Insurance Expense - - 3,500 - 3,500 -
Let’s recompute profit based
Interest Expense - - 600 - 600 -
Interest Payable - - - 600 - 600 on the adjusted (corrected)
Depreciation - - 500 - 500 - trial balance
[following a different format]
Total $90,200 $90,200 $11,800 $11,800 $93,800 $93,800
 Worksheet: Income Statement
Trial Balance Adjustments Adjusted T. B. Income Statement
Dr. Cr. Dr. Cr. Dr. Cr. Dr. (E) Cr. (I)
A Cash $1,500 - - - $1,500 -
A Accounts Receivable 15,500 - 2,500 - 18,000 -
A Office Supplies 7,700 - - 4,700 3,000 -
A Prepaid Insurance 5,000 - - 3,500 1,500 -
A Building 20,000 - - - 20,000 -
A Equipment 13,000 - - - 13,000 -
A– Acc. Dep - Equipment - $3,000 - 500 - $3,500
L 12% Mortgage Payable - 20,000 - - - 20,000
L Accounts Payable - 5,500 - - - 5,500
I Service Revenue - 26,500 - 2,500 - 29,000 - 29,000
I Rental Income - 5,000 - - - 5,000 - 5,000
OE Capital - 30,200 - - - 30,200
OE– Drawing 5,000 - - - 5,000 -
E Salary 15,000 - - - 15,000 - 15,000 -
E Repair Expense 7,500 - - - 7,500 - 7,500 -
E Supplies Expense - - 4,700 - 4,700 - 4,700
E Insurance Expense - - 3,500 - 3,500 - 3,500 -
E Interest Expense - - 600 - 600 - 600 -
L Interest Payable - - - 600 - 600 600- -
E Depreciation - - 500 - 500 - 500 -
OE Net Profit - - - - - - 2,200 -
Total $90,200 $90,200 $11,800 $11,800 $93,800 $93,800 $34,000 $34,000
 Worksheet: Balance Sheet
Trial Balance Adjustments Adjusted T. B. Income Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. (E) Cr. (I) Dr. (A) Cr. (L)
A Cash $1,500 - - - $1,500 - - - $1,500 -
A Accounts Receivable 15,500 - 2,500 - 18,000 - - - 18,000 -
A Office Supplies 7,700 - - 4,700 3,000 - - - 3,000 -
A Prepaid Insurance 5,000 - - 3,500 1,500 - - - 1,500 -
A Building 20,000 - - - 20,000 - - - 20,000 -
A Equipment 13,000 - - - 13,000 - - - 13,000 -
A– Acc. Dep - Equipment - $3,000 - 500 - $3,500 - - - $3,500
L 12% Mortgage Payable - 20,000 - - - 20,000 - - - 20,000
L Accounts Payable - 5,500 - - - 5,500 - - - 5,500
I Service Revenue - 26,500 - 2,500 - 29,000 - 29,000 - -
I Rental Income - 5,000 - - - 5,000 - 5,000 - -
OE Capital - 30,200 - - - 30,200 - - - 30,200
OE– Drawing 5,000 - - - 5,000 - - - 5,000 -
E Salary 15,000 - - - 15,000 - 15,000 - - -
E Repair Expense 7,500 - - - 7,500 - 7,500 - - -
E Supplies Expense - - 4,700 - 4,700 - 4,700 - - -
E Insurance Expense - - 3,500 - 3,500 - 3,500 - - -
E Interest Expense - - 600 - 600 - 600 - - -
L Interest Payable - - - 600 - 600 - - - 600
E Depreciation - - 500 - 500 - 500 - - -
OE Net profit - - - - - - 2,200 - - 2,200
Total $90,200 $90,200 $11,800 $11,800 $93,800 $93,800 $34,000 $34,000 $62,000 $62,000
 Worksheet
Trial Balance Adjustments Adjusted T. B. Income Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
CA Cash $1,500 - - - $1,500 - - - $1,500 -
CA Accounts Receivable 15,500 - 2,500 - 18,000 - - - 18,000 -
CA Office Supplies 7,700 - - 4,700 3,000 - - - 3,000 -
CA Prepaid Insurance 5,000 - - 3,500 1,500 - - - 1,500 -
FA Building 20,000 - - - 20,000 - - - 20,000 -
FA Equipment 13,000 - - - 13,000 - - - 13,000 -
A– Acc. Dep - Equipment - $3,000 - 500 - $3,500 - - - $3,500
LTL 12% Mortgage Payable - 20,000 - - - 20,000 - - - 20,000
CL Accounts Payable - 5,500 - - - 5,500 - - - 5,500
Service Revenue - 26,500 - 2,500 - 29,000 - 29,000 - -
Rental Income - 5,000 - - - 5,000 - 5,000 - -
OE Capital - 30,200 - - - 30,200 - - - 30,200
OE– Drawing 5,000 - - - 5,000 - - - 5,000 -
Salary 15,000 - - - 15,000 - 15,000 - - -
Repair Expense 7,500 - - - 7,500 - 7,500 - - -
Supplies Expense - - 4,700 - 4,700 - 4,700 - - -
Insurance Expense - - 3,500 - 3,500 - 3,500 - - -
Interest Expense - - 600 - 600 - 600 - - -
CL Interest Payable - - - 600 - 600 - - - 600
Depreciation - - 500 - 500 - 500 - - -
OE Net profit - - - - - - 2,200 - - 2,200
Total $90,200 $90,200 $11,800 $11,800 $93,800 $93,800 $34,000 $34,000 $62,000 $62,000
 Case of Teletalk Company

Following is the trial balance of TeleTalk Company as on March 31, 2020. After
completing first quarter of operation the given balances are found from the company’s Other data:
ledger accounts.

Debit Credit
1. Stock verification reveals only
Cash $1,500 - $3,000 of office supplies is on hand.
Accounts Receivable 15,500 -
Office Supplies 7,700 -
2. Amount of unexpired insurance at
Prepaid Insurance 5,000 - the end of the quarter is $1,500.
Building 20,000 -
Equipment 13,000 -
3. Interest on Mortgage Payable has to
Accumulated Depreciation – Equipment - $3,000 be recognized @ 12% per year.
12% Mortgage Payable (25% due in next quarter) - 20,000
4. Service provided but unbilled
Accounts Payable - 5,500
Service Revenue - 26,500 $2,500.
Rental Income - 5,000
5. Annual depreciation on equipment
Capital - 30,200
Drawing 5,000 -
is $2,000.
Salary 15,000 -
Repair Expense 7,500 -
Total $90,200 $90,200
 Financial Statements

TeleTalk Company TeleTalk Company

Income Statement Owner’s Equity Statement
For the quarter ended March 31, 2010 For the quarter ended March 31, 2010
Amount Amount Amount
Revenue: Capital $30,200
Service Revenue $29,000 Add: Net profit 2,200
Rental Income 5,000 32,400
Total Revenue $34,000 Less: Drawings 5,000
Expenses: Closing equity $27,400
Salary 15,000
Repair Expense 7,500
Supplies Expense 4,700
Insurance Expense 3,500
Interest Expense 600
Depreciation Expense 500
Total Expenses $31,800
Net Profit $2,200
 Financial Statements

TeleTalk Company
Balance Sheet
As on March 31, 2010
Assets: Liabilities and Owner’s Equity:
Current Assets – Current Liability –
Cash $1,500 Accounts Payable $5,500
Account Receivable 18,000 Interest Payable 600
Office Supplies 3,000 12% Mortgage Payable (25%) 5,000
Prepaid Insurance 1,500 Total current liability $11,100
Total current assets $24,000 Long Term Liability –
Fixed Assets – 12% Mortgage Payable (75%) 15,000
Building 20,000
Equipment $13,000 Owner’s Equity 27,400
Less: Acc. Dep. 3,500
Net Equipment 9,500
Total fixed assets 29,500
Total Assets $53,500 Total Liability and Owner’s Equity $53,500
You can expect a quiz on 24.02.21 (Wednesday)
 Assignment

Case 1
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 unearned
Office Furniture 10,200 -
at the end of the month.
Accounts Payable - $4,500
(5) May 31 is a Wednesday, and employees are paid on Fridays. Hambone
Unearned Service Revenue - 2,000
Consulting has two employees, who are paid $800 each for a 5-day work week.
K. Ham, Capital - 13,200
(6) The office furniture has a 5-year life with no salvage value. It is being depreciated
Service Revenue - 12,000
at $170 per month for 60 months.
Salaries Expense 3,400 -
(7) Invoices representing $1,200 of services performed during the month have not
Rent Expense 900 -
been recorded as of May 31.
31,700 31,700

Prepare adjusting entries for the month.

 Assignment

Case 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 - Other data:
Lodge 60,000 - (1) Prepaid insurance is a 1-year policy starting May 1, 2008.
Furniture 15,000 - (2) A count of supplies shows $750 of unused supplies on May 31.
Accounts Payable - $4,800 (3) Annual depreciation is $3,000 on the lodge and $2,700 on furniture.
Unearned Rent - 3,300 (4) The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
Mortgage Payable - 35,000 (5) Two-thirds of the unearned rent has been earned.
Kevin Henry, Capital - 46,380 (6) Salaries of $750 are accrued and unpaid at May 31.
Rent Revenue - 10,300
Advertising Expense 600 -
Salaries Expense 3,300 -
Utilities Expense 900 -
$99,780 $99,780
Prepare adjusting entries, worksheet, and financial statements for Mound View Motel for the month.
 Assignment

Submission Guideline
• Submit using MS Teams (DO NOT EMAIL). Go to the chat option, select new message and send
individual message (DO NOT POST YOUR ASSIGNMENT IN THE CLASS OF MS TEAMS).
• You can take a picture of your solution (handwritten with good format/tables and workings) to
submit your assignment. Your name and ID must be clearly stated in your submission.
Submission must be done by Saturday (20.02.2021) on or before 11:59 pm.
• Any late submission will not be accepted.
• Any case of plagiarism will be handled strictly and may result F Grade in the course.