American International University – Bangladesh

BBA 1102
Principles of Accounting
Session 3
What we have discussed in the last class….

● We have to follow the golden rule of accounting [Dr. A &

E if increase and Cr. L & I if increase].
● Double entry system refers to recording dual effects of
every transaction
● Owner’s equity is the claim of owner from the business
● Owner’s equity changes by four reasons: two of them
increases OE (Capital and Income) and two of them
reduces OE (Drawings and Expense).
● Economic entity assumption indicate the business is
having a separate entity and the entity (identity) is
distinct from the owner and anybody else.
● Monetary unit assumption indicate that the business
should record events that can be expressed in terms of
money (these events are called transactions)
● Accounting equation: A = L + OE
TOPICS

Case of Reeves Repair Shop

▪ Tabular Analysis
▪ Journal entries
▪ Ledger Accounts
 Case of Reeves Repair Shop
Keanu Reeves started the ‘Reeves Repair Shop’ on 1st May 2015 introducing $35,000 capital. His
capital consist $20,000 cash, and equipment worth $15,000. On May he completed the following
transactions:
May 02: Paid $1,000 cash for store rent for the month of May.
03: Purchase a new equipment for $12,000 from Lorence AotoParts Ltd., paying 40% cash and
signing a 6-month, 12% note payable for the remaining balance.
05: Paid $1,200 for one-year accident insurance policy.
08: Receive bill from the daily news for advertising the opening of the repair shop $600.
12: Provide repair service to Hi-Fi Electronics $6,000. (60% cash and 40% on account).
15: Hire a secretary at a salary of $1,000 per month who will work from next month.
17: Made a contract with a client for service to be provided on June and collect $3,500 cash.
22: Collect 40% of balance due from Hi-Fi Electronics.
26: Paid $400 on account for advertisement incurred on May 08.
 Tabular Analysis
Paid $1,200 for one-year accident insurance policy.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid 12% Notes Equity
Cash Equipment
Insurance Payable
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -

Remember:
Prepaid insurance Dr. 1,200
Journal Entry A & E  is Dr.
Cash account Cr. 1,200 L & I  is Cr.
 Tabular Analysis
Receive bill from the daily news for advertising the opening of the repair shop $600.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid 12% Notes Accounts Equity
Cash Equipment
Insurance Payable payable
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense

Remember:
Journal Entry Advertisement expense Dr. 600 A & E  is Dr.
Accounts payable Cr. 600 L & I  is Cr.
 Tabular Analysis
Provide repair service to Hi-Fi Electronics $6,000. (60% cash and 40% on account).

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid Account 12% Notes Accounts Equity
Cash Equipment
Insurance receivable Payable payable
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense
12
12 3,600 - - 2,400 - - - 6,000 Services revenue

Cash account Dr. 3,600 Remember:

Journal Entry Account receivable Dr. 2,400 A & E  is Dr.
Service revenue Cr. 6,000 L & I  is Cr.
 Tabular Analysis
Hire a secretary at a salary of $1,000 per month who will work from next month.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid Account 12% Notes Accounts Equity
Cash Equipment
Insurance receivable Payable payable
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense
12 3,600 - - 2,400 - - - 6,000 Services revenue
15
15 - - - - - - - -

Remember:
Journal Entry No entry A & E  is Dr.
L & I  is Cr.
 Tabular Analysis
Made a contract with a client for service to be provided on June and collect $3,500 cash.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid Account 12% Notes Accounts Unearned Equity
Cash Equipment
Insurance receivable Payable payable revenue
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense
12 3,600 - - 2,400 - - - 6,000 Services revenue
15 - - - - - - - -
17
17 3,500 - - - - - 3,500 -

Remember:
Cash account Dr. 3,500
Journal Entry A & E  is Dr.
Unearned revenue Cr. 3,500 L & I  is Cr.
 Tabular Analysis
Collected 40% of balance due from Hi-Fi Electronics.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid Account 12% Notes Accounts Unearned Equity
Cash Equipment
Insurance receivable Payable payable revenue
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense
12 3,600 - - 2,400 - - - 6,000 Services revenue
15 - - - - - - - -
17 3,500 - - - - - 3,500 -
22
22 960 - - (960) - - - -

Remember:
Cash account Dr. 960
Journal Entry A & E  is Dr.
Account receivable Cr. 960 L & I  is Cr.
 Tabular Analysis
Paid $400 on account for advertisement incurred on May 08.

A = L + OE
Assets Liabilities
Owner’s
Date Remarks
Prepaid Account 12% Notes Accounts Unearned Equity
Cash Equipment
Insurance receivable Payable payable revenue
May 1 20,000 15,000 - - - - - 35,000 Investment
2 (1,000) - - - - - - (1,000) Rent expense
3 (4,800) 12,000 - - 7,200 - - -
5 (1,200) - 1,200 - - - - -
8 - - - - - 600 - (600) Advertisement expense
12 3,600 - - 2,400 - - - 6,000 Services revenue
15 - - - - - - - -
17 3,500 - - - - - 3,500 -
22 960 - - (960) - - - -
26
26 (400) - - - - (400) - -

Accounts payable Dr. 400 Remember:

Journal Entry A & E  is Dr.
Cash Cr. 400 L & I  is Cr.
 Journal entries: Summary of Reeves Repair Shop
Date Account titles and explanation Ref.
Amount ($) Ledger Accounts
Debit Credit
May 1 Cash account Dr. 20,000 Cash Accounts
Equipment account Dr. 15,000
Reeve’s Capital account Cr. 35,000 Date Explanation Ref. Debit Credit Balance
2 Rent expense Dr. 1,000
May 1 20,000 - 20,000
Cash account Cr. 1,000
2 - 1,000 19,000
3 Equipment account Dr. 12,000
3 - 4,800 14,200
Cash account Cr. 4,800
12% notes payable account Cr. 7,200 5 - 1,200 13,000
5 Prepaid insurance Dr. 1,200 12 3,600 - 16,600
Cash account Cr. 1,200 17 3,500 - 20,100
8 Advertisement expense account Dr. 600 22 960 - 21,060
Accounts payable account Cr. 600 26 - 400 20,660
12 Cash account Dr. 3,600
Accounts receivable account Dr. 2,400
Chart of Accounts
Service revenue account Cr. 6,000
15 No transaction 1. Cash 7. Advertisement
17 Cash account Dr. 3,500 2. Equipment 8. Accounts payable
Unearned revenue Cr. 3,500 3. Capital 9. Accounts receivable
22 Cash account Dr. 960 4. Rent 10. Service revenue
Accounts receivable Cr. 960 5. Notes payable 11. Unearned revenue
26 Accounts payable account Dr. 400 6. Prepaid insurance
Cash Cr. 400
 Assignment: Task 1

Alexis Computer entered into the following transactions during May 2018.
1. Purchased computer terminals for $15,000 from Digital Daze on account.
2. Paid $3,000 cash for May rent on storage space.
3. Received $12,000 cash from customers for contracts billed in April.
4. Provided computer services to Johnson Construction Company for $2,500 cash.
5. Alexis invested an additional $25,000 in the business.
6. Paid Digital Daze for the terminals purchased in (1) above.
7. Incurred advertising expense for May of $900 on account.

Prepare a tabular analysis and provide journal entries

for the above transactions.
 Assignment: Task 2
Amount ($)
Date Account titles and explanation Ref.
Debit Credit
May 1 Cash account Dr. 20,000
Equipment account Dr. 15,000
Reeve’s Capital account Cr. 35,000
2 Rent expense Dr. 1,000
Cash account Cr. 1,000
3 Equipment account Dr. 12,000
Cash account Cr. 4,800
Prepare all the ledger accounts for
12% notes payable account Cr. 7,200
5 Prepaid insurance Dr. 1,200
Reeve’s Repair Shop based on the
Cash account Cr. 1,200 journal entries provided on the left side
8 Advertisement expense account Dr. 600 [use the chart of accounts discuss in earlier slide]
Accounts payable account Cr. 600
12 Cash account Dr. 3,600
Accounts receivable account Dr. 2,400
Service revenue account Cr. 6,000
15 No transaction
17 Cash account Dr. 3,500
Unearned revenue Cr. 3,500
22 Cash account Dr. 960
Accounts receivable Cr. 960
26 Accounts payable account Dr. 400
Cash Cr. 400
 Assignment

Submission Guideline

Individual message in MS Teams

• 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 Tuesday
(02.02.2021) 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.
 Quiz 1
08.02.2021 (Monday)
Based on Lectures 1, 2, 3, and 4
[MCQ type questions]