Chapter 2
Linking Personal Accounting to Business Accounting
40
John Smith created Ace Bookkeepers as a proprietary business. During the month of March 2016,
he made the following transactions.
1. John Smith deposited $30,000 cash into the new business’ bank account.
2. Borrowed $10,000 from the bank.
3. Bought $8,000 worth of furniture with cash.
4. A customer paid $2,000 cash for bookkeeping services to be provided next month.
5. Provided services to customers and received $15,000 cash.
6. Provided bookkeeping services for $4,000 on account.
7. Paid $6,000 cash for a one-year insurance policy which started on the first of the month.
8. Paid $1,100 cash for rent for the month.
9. Paid $6,000 cash to employees for salary.
10. Paid $200 cash for interest on the bank loan.
11. Received a telephone bill for $300 which will be paid later.
12. Paid travel expenses of $2,000 with a credit card, which will be paid next month.
13. Paid $3,000 toward the bank loan.
14. John Smith withdrew $2,000 cash for personal use.
15. A customer paid $500 cash for the amount owing for bookkeeping services provided earlier in
the month.
16. Paid the telephone bill received earlier in the month.
Transaction 1: The owner deposited cash into the business
When an owner invests his or her own cash into a proprietary business, the cash is recorded
directly in the owner’s capital and is regarded as owner’s equity. This transaction increases cash and
increases owner’s capital and leaves the accounting equation balanced, as shown in Figure 2.17.
Record the transaction in the T-accounts
CASH
SMITH, CAPITAL
+
-
-
+
30,000
30,000
Analyze the impact on the accounting equation
Assets = Liabilities + Owner’s Equity Explanation*
*Explanation of changes to Owner’s Equity
+ 30,000
+ 30,000
Owner investment
______________
FIGURE 2.17
