Chapter 2
Linking Personal Accounting to Business Accounting
45
Transaction 13: Repaid a portion of the bank loan principal
This transaction is the opposite of what was recorded in transaction 2.To pay back part of the bank
loan principal we will decrease cash and decrease the bank loan with no impact on the owner’s
equity. Repaying any debt, including accounts payable, will be recorded in a similar manner. It is
important to be able to pay back loans when they are due. Failure to pay loans on time is called
defaulting on the loan and can make it more difficult to borrow in the future. In some cases,
defaulting may also cause the business to close down.
Record the transaction in the T-accounts
CASH
+
-
3,000
BANK LOAN
-
+
3,000
Analyze the impact on the accounting equation
Assets = Liabilities + Owner’s Equity
- 3,000
- 3,000
Explanation*
*Explanation of changes to Owner’s Equity
______________
FIGURE 2.26
Transaction 14: The owner withdrew cash for personal use
In a proprietary business, the owner is not an employee and does not receive a salary the way
that other employees do. If the owner withdraws cash from the business for personal items,
such as grocery bills or mortgage payments on their house, these withdrawals are called draw-
ings. As discussed earlier, owner’s drawings are a direct decrease to owner’s equity and are not
recorded as expenses. This transaction is recorded by decreasing cash and increasing owner’s
drawings, and is shown in Figure 2.27. The decrease in equity is recorded as an increase to
owner’s drawings.
Record the transaction in the T-accounts
CASH
+
-
2,000
SMITH, DRAWINGS
+
-
2,000
Analyze the impact on the accounting equation
Assets = Liabilities + Owner’s Equity
- 2,000
- 2,000
Explanation*
Owner withdrew cash
*Explanation of changes to Owner’s Equity
______________
FIGURE 2.27
