Mr.

Farhan on completion of his business education starts a new business

“Farhan Enterprise” by contributing taka 10,00,000 as capital on 1 st July, 2011.
The following transactions occurred during the first month of operation:
July 1 Hired a manager for a salary of taka 15,000 per
month
July 5 Hired an office space for business for rent of taka
10,000 per month
July 7 Purchased office equipment from an outside
supplier for taka 20,000 to be paid in next 60 days
July 15 Performed service on behalf of the clients’ taka
60,000 on account
July 23 Borrowed taka 20,000 from HSBC by issuing a note
payable in two years
July 28 Paid rent for office space
July 28 Paid salary to manager
SOLUTION:
Farhan Enterprise
Journal Entries
Date Accounts title and explanation Ref Dr (Tk) Cr (Tk)
1.7.11 Cash a/c 10,00,00
Capital a/c 0 10,00,000
[To record the cash investment
by the owner to start the
business]
1.7.11 This is not a transaction
5.7.11 This is not a transaction
7.7.11 Equipment a/c 20,000
Accounts payable a/c 20,000
[To record the purchase of
office equipment on account]
15.7.1 Accounts receivable a/c 60,000
1 Service revenue a/c 60,000
[To record the service revenue
earned but due]
23.7.1 Cash a/c 20,000
1 Note payable a/c 20,000
[To record the receipt of cash
from bank by signing a 2-year
note]
28.7.1 Office rent expense a/c 10,000
1 Cash a/c 10,000
[To record the cash payment for
office space]
28.7.1 Salaries expense a/c 15,000
1 Cash a/c 15,000
[To record the payment of
salaries for July]

Total 11,25,00 11,25,000

0
PROBLEM-06
Selected transactions for Mis. Anderson, an interior decorator, in her first month of
business, are as follows.
Jan. 2 Invested $10,000 cash in business.
3 Purchased used car for $4,000 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $2,100 for services performed.
16 Paid $350 cash for advertising.
20 Received $700 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Withdrew $1,000 cash for personal use by owner.
Instructions
(i) Prepare the journal entries.
(ii) Post to the ledger.
(iii) Prepare the trial balance.
SOLUTION:
Mis. Anderson
JOURNAL Entries
Date Accounts title and explanation Ref Dr ($) Cr ($)
Jan 2 Cash a/c 10,000
Capital a/c 10,000
[To record the cash investment
 by the owner]
Jan 3 Car a/c 4,000
Cash a/c 4,000
[To record the purchase of used
car for cash]
Jan 9 Supplies a/c 500
Accounts payable a/c 500
[To record the purchase of
supplies on account]
Jan 11 Accounts receivable a/c 2,100
Service revenue a/c 2,100
[To record the service revenue
earned but not received]
Jan 16 Advertising expense a/c 350
Cash a/c 350
[To record the payment for
advertisement]
Jan 20 Cash a/c 700
Accounts receivable a/c 700
[To record the cash collection
from accounts receivable]
Jan 23 Accounts payable a/c 300
Cash a/c 300
[To record the payment from
accounts payable]
Jan 28 Drawings a/c 1,000
Cash a/c 1,000
[To record the withdrawal of
money by the owner for
personal use]
Total
c/d= Carried down; b/f= Balance forward
Ledger (Traditional Format)
Dr Cash a/c Cr
Date Particulars Ref $ Date Particulars Ref $
Jan 2 Capital a/c 10,000 Jan 3 Car a/c 4,000
Jan 20 Accounts receivable a/c 700 Jan 15 Advertising expense a/c 350
Jan 23 Accounts payable a/c 300
Jan 28 Drawings a/c 1,000
Jan 31 Balance c/d [Dr balance] 5,050

10,700 10,700

Feb 1 Balance b/d 5,050

Dr Capital a/c Cr
Date Particulars Ref $ Date Particulars Ref $
Jan 31 Balance c/d [Cr balance] 10,000 Jan 2 Cash a/c 10,000

10,000 10,000
Feb 1 Balance b/d 10,000
Dr Car a/c Cr
Date Particulars Ref $ Date Particulars Ref $
Jan 3 Cash a/c 4,000 Jan 31 Balance c/d 4,000

4,000 4,000

Feb 1 Balance b/d 4,000

Dr Supplies a/c Cr
Date Particulars Ref $ Date Particulars Ref $
Jan 9 Accounts payable a/c 500 Jan 31 Balance c/d 500

500 500

Feb 1 Balance b/d 500

Dr Accounts payable Cr
Date Particulars Ref Tk Date Particulars Ref Tk
Jan 23 Cash a/c 300 Jan 9 Supplies a/c 500
Jan 31 Balance c/d 200

500 500

Feb 1 Balance b/d 200

Dr Accounts receivable a/c Cr
Date Particulars Ref Tk Date Particulars Ref Tk
Jan 11 Service revenue a/c 2,100 Jan 20 Cash a/c 700
Jan 31 Balance c/d 1,400

2,100 2,100

Feb 1 Balance b/d 1,400

 Dr Service Revenue a/c Cr
Date Particulars Ref Tk Date Particulars Ref Tk
Jan 31 Balance c/d 2,100 Jan 11 Accounts receivable a/c 2,100

2,100 2,100

Feb 1 Balance b/d 2,100

Dr Advertising expense a/c Cr
Date Particulars Ref Tk Date Particulars Ref Tk
Jan 15 Cash a/c 350 Jan 31 Balance c/d 350

350 350

Feb 1 Balance b/d 350

Dr Drawings a/c Cr
Date Particulars Ref Tk Date Particulars Ref Tk
Jan 28 Cash a/c 1,000 Jan 31 Balance c/d 1,000

1,000 1,000
Feb 1 Balance b/d 1,000
Ledger (Continuous Balancing Method)
Cash a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 2 Capital a/c 10,000 10,000
Jan 3 Car a/c 4,000 6,000
Jan 15 Advertising expense a/c 350 5,650
Jan 20 Accounts receivable a/c 700 6,350
Jan 23 Accounts payable a/c 300 6,050
Jan 28 Drawings a/c 1,000 5,050
Capital a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 2 Cash a/c 10,000 10,000

Car a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 3 Cash a/c 4,00 4,000
0
Supplies a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 9 Accounts payable a/c 500 500
 Accounts payable a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 9 Supplies a/c 500 500
Jan 23 Cash a/c 300 200
Accounts receivable a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 11 Service revenue a/c 2,10 2,100
Jan 20 Cash a/c 0 700 1,400
Service revenue a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 11 Accounts receivable a/c 2,100 2,100

Advertising expense a/c

Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 15 Cash a/c 350 350

Drawings a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 28 Cash a/c 1,00 1,000
0
Next step: Preparation of trial balance
A trial balance is a list of all ledger balances. There are four
columns in a trial balance.
i. Serial
ii. Accounts title
iii. Debit
iv. Credit
The debit balance of a ledger will come to the debit side and the
credit balance of a ledger will come to the credit side of the trial
balance. The total of debit must equal to the total of credit. It is
usually prepared to justify mathematical accuracy. Trail balance
is prepared at the last date of the accounting period.
 Mis. Anderson
Trail Balance
As on 31st January, 2025
Serial Accounts title Dr ($) Cr ($)
1 Cash a/c 5,050
2 Capital a/c 10,000
3 Car a/c 4,000
4 Supplies a/c 500
5 Accounts payable a/c 200
6 Accounts receivable a/c 1,400
7 Service revenue a/c 2,100
8 Advertising expense a/c 350
9 Drawings a/c 1,000
Total 12,300 12,300

Usual balances of ledger:

Asset a/c------ Dr balance
Expense a/c-----Dr balance
Revenue a/c------Cr balance
Capital a/c-------Cr balance
Liability a/c--------Cr balance
Drawings a/c------Dr balance
List of accounts:
Account title Usual balance
Service revenue a/c Cr
Car a/c Dr
Rent expense a/c Dr
Accounts payable a/c Cr
Sales revenue a/c Cr
Sales return a/c Dr
Bad debt expense a/c Dr
Drawings a/c Dr
 Transportation-in /Freight-in Dr
Capital a/c Cr
Review Class
Journal
Ledger
And trial balance
Double entry:
According to the double entry, each transaction must affect at
least two accounts.
Account represents change in any asset, liability, equity or capital,
revenue and expense.
Traditional system/British system:
Accounts are of three types:
i. Personal account- related with a person
ii. Real account- related with an asset
iii. Nominal account- related with income and expense
American system/Modern system:
Accounts are of five types:
i. Asset account
ii. Liability account
iii. Capital account
iv. Revenue account
v. Expense account
Account is briefly written as a/c.
Debit and credit
Debit and credit are used to show the increase or decrease in
assets, liabilities, capital, revenue and expenses.
Debit means left side and credit means right side.
Dr Cash a/c Cr

How to determine debit and credit?

Traditional system/British system:
Accounts are of three types:
i. Personal account- related with a person
Facility provider- Cr; Facility receiver—Dr
ii. Real account- related with an asset
Which comes---Dr; Which goes---Cr
iii. Nominal account- related with income and expense
Income, gain----Cr; Expense, loss--- Dr
American system/Modern system:
Accounts are of five types:
i. Asset account
AID= Asset increases debit
Increase----Dr
Decrease---Cr
ii. Liability account
Increase---Cr
Decrease---Dr
iii. Capital account
Increase ----Cr
Decrease-----Dr
iv. Revenue account
Increase----Cr
Decrease----Dr
v. Expense account
Increase----Dr
Decrease----Cr
Cash Dr Increase
Equipment Dr Increase
Cash Cr Decrease
Capital Cr Increase
Salary expense Dr Increase
Accounting equation:
Basic equation:
Assets = Liabilities + Owners ‘Equity
Expanded equation:
Assets = Liabilities + Capital + Revenues – Expenses – Drawings
How to write?
Purchased equipment for cash $500 at January 1, 2025.
Equipment a/c---- increase-----Dr
Cash a/c------------decrease ----Cr
Date Accounts title and explanation Ref Dr ($) Cr ($)
1.1.202 Equipment a/c…………..Dr
5 Cash a/c…………………Cr
Or
Equipment a/c……………Dr
To Cash a/c
Or
Equipment a/c 500
Cash a/c 500
[To record the purchase of
equipment on cash]
Example:
Selected transactions for Mis. Anderson, an interior decorator, in her first
month of business, are as follows.
Jan. 2 Invested $10,000 cash in business. [Cash a/c, Capital a/c]
3 Purchased used car for $4,000 cash for use in business. [Car
a/c, Cash a/c]
9 Purchased supplies on account for $500. [Supplies a/c,
Accounts payable a/c]
11 Billed customers $2,100 for services performed. [Accounts
receivable a/c, Service revenue a/c]
16 Paid $350 cash for advertising. [Cash a/c, Advertising expense
a/c]
20 Received $700 cash from customers billed on January 11.
[Cash a/c, Accounts receivable a/c]
23 Paid creditor $300 cash on balance owed. [Cash a/c, Accounts
payable a/c]
28 Withdrew $1,000 cash for personal use by owner. [Drawings
a/c, Cash a/c]
Instructions
Prepare the journal entries
SOLUTION:
Mis. Anderson
Journal entries
Date Accounts title and explanation Ref Dr ($) Cr ($)
Jan 2 Cash a/c 10,00
Capital a/c 0 10,000
[To record the investment by the
owner]
Jan 3 Car a/c 4,000
Cash a/c 4,000
[To record the purchase of Car
on cash]
Jan 9 Supplies a/c 500
Accounts payable a/c 500
[To record the purchase of
supplies on account]
Jan 11 Accounts receivable a/c 2,100
Service revenues a/c 2,100
[To record the service revenue
earned but not received.]
Jan 16 Advertising expense a/c 350
Cash a/c 350
[To record the payment for
advertising expense]
Jan 20 Cash a/c 700
Accounts receivable a/c 700
[To record the cash collection
from accounts receivable]
Jan 23 Accounts payable a/c 300
Cash a/c 300
[To record the cash payment for
accounts payable]
Jan 28 Drawings a/c 1,000
 Cash a/c 1,000
[To record the cash withdrawal
by owner for personal use]
EXERCISE
Desiree Clark is a licensed CPA. During the first month of operations of her business, the
following events and transactions occurred.
May 1 Clark invested $20,000 cash in her business.
Cash a/c---- increase ---- Dr
Capital a/c---- increase ----Cr
May 2 Hired a secretary-receptionist at a salary of $2,000 per month.
No transaction
May 3 Purchased $2,500 of supplies on account from Read Supply Company.
Supplies a/c---increase---- Dr
Accounts payable ----increase --- Cr
May 7 Paid office rent of $900 cash for the month.
Office rent a/c---increase ---- Dr
Cash a/c----decrease --------Cr
May 11 Completed a tax assignment and billed client $3,200 for services provided.
Accounts receivable a/c------increase ---- Dr
Service revenue a/c----------increase-------Cr
May 12 Received $3,500 advance on a management consulting engagement.
Cash a/c---- increase ------Dr
Unearned service revenue a/c------ Cr
May 17 Received cash of $1,200 for services completed for C. Desmond Co.
Cash a/c-----increase ------- Dr
Service revenue a/c----- increase ------Cr
May 31 Paid secretary-receptionist $2,000 salary for the month.
Salary expense a/c----increase -----Dr
Cash a/c------Decrease------- Cr
May 31 Paid 60% of balance due Read Supply Company.
Accounts payable a/c-------Decrease ---------Dr
Cash a/c----------------decrease -----------Cr
Required: Journalize the transactions
Posting to the ledger
Grouping the transactions according to different heads.
Mis. Anderson
Journal entries
Date Accounts title and explanation Ref Dr ($) Cr ($)
Jan 2 Cash a/c 10,000
Capital a/c 10,000
[To record the investment by the
owner]
Jan 3 Car a/c 4,000
Cash a/c 4,000
[To record the purchase of Car on
cash]
Jan 9 Supplies a/c 500
Accounts payable a/c 500
[To record the purchase of supplies
on account]
Jan 11 Accounts receivable a/c 2,100
Service revenues a/c 2,100
[To record the service revenue
earned but not received.]
Jan 16 Advertising expense a/c 350
Cash a/c 350
[To record the payment for
advertising expense]
Jan 20 Cash a/c 700
Accounts receivable a/c 700
[To record the cash collection from
accounts receivable]
Jan 23 Accounts payable a/c 300
Cash a/c 300
[To record the cash payment for
accounts payable]
Jan 28 Drawings a/c 1,000
Cash a/c 1,000
[To record the cash withdrawal by
owner for personal use]
Continuous balancing method
There are seven columns
Cash a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 2 Capital a/c 10,000 10,000
Jan 3 Car a/c 4,000 6,000
Jan 16 Advertising expense a/c 350 5,650
Jan 20 Accounts receivable a/c 700 6,350
Jan 23 Accounts payable a/c 300 6,050
Jan 28 Drawings a/c 1,000 5,050
 Capital a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 2 Cash a/c 10,000 10,000

Car a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 3 Cash a/c 4,00 4,000
0
Supplies a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 9 Accounts payable a/c 500 500

Accounts payable a/c

Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 9 Supplies a/c 500 500
Jan 23 Cash a/c 300 200
Accounts receivable a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 11 Service revenue a/c 2,10 2,100
Jan 20 Cash a/c 0 700 1,400
Service revenue a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 11 Accounts receivable a/c 2,100 2,100

Advertising expense a/c

Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 16 Cash a/c 350 350

Drawings a/c
Date Particulars Ref Dr Cr Balance
Dr Cr
Jan 28 Cash a/c 1,00 1,000
0
Trial Balance:
A list of all ledger balances. The debit balance of a ledger will
come to the debit side of a trial balance and the credit balance of a
 ledger will come to the credit side of trail balance. There are four
columns: serial, accounts title, Dr, Cr.
Mis Anderson
Trail Balance
As on 31st January, 2025
Serial Accounts title Dr ($) Cr ($)
1 Cash a/c 5,050
2 Capital a/c 10,000
3 Car a/c 4,000
4 Supplies a/c 500
5 Accounts payable a/c 200
6 Accounts receivable a/c 1,400
7 Service revenue a/c 2,100
8 Advertising expense a/c 350
9 Drawings a/c 1,000
Total 12,300 12,300

Adjusting Entries:
Prepaid Expense:
Supplies
Illustration: Pioneer Advertising purchased supplies costing
$2,500 on October 5. Pioneer recorded the payment by increasing
(debiting) the asset Supplies. This account shows a balance of
$2,500 in the October 31 trial balance. An inventory count at the
close of business on October 31 reveals that $1,000 of supplies
are still on hand.
Original entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 5 Supplies a/c 2,500
Cash a/c 2,500
Adjusting entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 31 Supplies expense a/c 1,500
 Supplies a/c 1,500
[To record the use of supplies
during October]
Insurance
Illustration: On October 4, Pioneer Advertising paid $600 for a
one-year fire insurance policy. Coverage began on October 1.
Pioneer recorded the payment by increasing (debiting) Prepaid
Insurance. This account shows a balance of $600 in the October
31 trial balance. Insurance of $50 ($600 ÷ 12) expires each
month.
Original entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 5 Prepaid insurance a/c 600
Cash a/c 600

Adjusting entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 31 Insurance expense a/c [600/12] 50
Prepaid insurance a/c 50
To record the insurance
expense as prepaid insurance is
expired for 1 month]
Depreciation
Buildings, equipment, and motor vehicles (assets that
provide service for many years) are recorded as
assets, rather than an expense, on the date acquired.
Depreciation is the process of allocating the cost of
an asset to expense over its useful life.
Depreciation does not attempt to report the actual
change in the value of the asset.
 ►Allocation concept, not a valuation concept.
Several methods for depreciation:
i. Straight line method
ii. Sum-of-the-years-digit method
iii. Double declining method
iv. Units-of-activity or physical units method
Depreciable base= Cost -Salvage value or scrap value or residual
value
Illustration: For Pioneer Advertising, assume that depreciation
on the equipment is $480 a year, or $40 per month.
Adjusting entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 31 Depreciation expense a/c 40
Accumulated depreciation 40
[To record the depreciation
expense on equipment for one
month]
Accumulated depreciation is a contra asset account. In the balance
sheet accumulated depreciation is deducted from cost value of
asset.
Example:
The cost of the equipment = $10,000
Salvage value= $2,000
Economic life= 4 years
Depreciation for year 1= ?
Depreciable base= Cost – Salvage value= $10,000-$2,000=
$8,000
Depreciation for each year= $8,000/4 years= $2,000 per year
Adjusting entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 31 Depreciation expense a/c 2,000
Accumulated depreciation 2,000
[To record the depreciation
 expense on equipment for one
month]
STATEMENT PRESENTATION
Accumulated Depreciation is a contra asset account
(credit).
Offsets related asset account on the balance sheet.
Book value is the difference between the cost of any
depreciable asset and its accumulated depreciation.

Unearned Revenues:
Adjusting entry is made to record the revenue for
services performed during the period and to show the
liability that remains at the end of the period.
Results in a decrease (debit) to a liability account and
an increase (credit) to a revenue account.
Illustration: Pioneer Advertising received $1,200 on
October 2 from R. Knox for advertising services expected to
be completed by December 31. Unearned Service Revenue
shows a balance of $1,200 in the October 31 trial balance.
Analysis reveals that the company performed $400 of
services in October.
Original entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 2 Cash a/c 1,200
Unearned service revenue a/c 1,200
Adjusting entry:
Date Accounts title and explanation Ref Dr ($) Cr ($)
Oct. 31 Unearned service revenue a/c 400
Service revenue a/c 400
[To record the service revenue
 earned from unearned service
revenue]

SOLUTION:
Hammond Company
Adjusting Entries
Date Accounts title and explanation Ref Dr ($) Cr ($)
Mar 31 (1) Insurance expense a/c 100
Prepaid insurance a/c 100
[To record the insurance expense
expired]
Mar 31 (2) Supplies expense a/c 2,000
Supplies a/c 2,000
[To record the supplies expense
from supplies]
Mar 31 (3) Depreciation expense a/c 200
Accumulated depreciation 200
a/c
[To record the depreciation
 expense for one month]
Mar 31 (4) Unearned service revenue a/c 4,600
Service revenue a/c 4,600
[To record the service revenue
earned from unearned service
revenue]