Chapter 2
Linking Personal Accounting to Business Accounting
41
Transaction 2: Borrowed cash from the bank
The business has increased its debt by getting a
loan from the bank. This transaction is recorded by
increasing cash (an asset) and increasing the value of
bank loan (a liability). The transaction has no impact
on owner’s equity; therefore nothing is recorded on the
income statement. Again, the accounting equation will
remain in balance.
Record the transaction in the T-accounts
CASH
BANK LOAN
+
-
-
+
10,000
10,000
Analyze the impact on the accounting equation
Assets = Liabilities + Owner’s Equity
+ 10,000
+ 10,000
Explanation*
*Explanation of changes to Owner’s Equity
*Explanation of changes to Owner’s Equity
______________
FIGURE 2.18
Transaction 3: Bought furniture with cash
Furniture, computers, cars and other similar assets are considered to be property, plant and equipment
and are long-term assets.These assets are used to run the business and generate sales and should not be
sold to customers or sold to raise cash to pay for day-to-day expenses. Each type of property, plant and
equipment is given its own T-account.This transaction is simply an exchange of one asset for another,
and is recorded by increasing furniture and decreasing cash as shown in Figure 2.19.
Record the transaction in the T-accounts
CASH
FURNITURE
+
+
-
-
8,000
8,000
Analyze the impact on the accounting equation
Assets = Liabilities + Owner’s Equity
- 8,000
+ 8,000
Explanation*
*Explanation of changes to Owner’s Equity
*Explanation of changes to Owner’s Equity
______________
FIGURE 2.19
A bank loan increases an asset and a
liability without affecting the balance of
owner’s equity.
WORTH REPEATING
