1 The introduction of capital

On 1 May 2007, B Blake started a business & deposited $60,000 into a bank account
opened specially for the biz. The Balance Sheet would show:

B Blake
Balance sheet as at 1 May 2007
$
Assets: Cash at bank 60,000 (+60,000)

Capital 60,000 (+60,000)

Notice how the top part of the balance sheet contains the assets & the bottom part
contains the capital. This is always the way the information is presented in a B/S.

2 The purchase of an asset by cheque

On 3 May 2007, Blake buys a small shop for $32,000, paying by cheque. The effect of
this transaction on the balance sheet is that the cash at the bank is decreased and the
new asset, building, is added:

B Blake
Balance sheet as at 3 May 2007
Assets $
Shop 32,000 (+32,000)
Cash at bank 28,000 (60,000 - 32,000)
60,000

Capital 60,000

Note how the 2 parts of the B/S 'balance'. That it, their totals are the same. This is
always the case with balance sheets.
3 The purchase of an asset and the incurring of a liability

On 6 May 2007, Blake buys some goods for $7,000 from D. Smith, and agrees to pay
for them some time within the next 2 weeks. The effects of this is that a new asset,
inventory, is acquired, and a liability for the goods are created. A person to whom $
is owed for goods is known as a creditor, and it described in the balance sheet as an
account payable. The balance sheet becomes:

B Blake
Balance sheet as at 6 May 2007
Assets $
Shop 32,000
Inventory 7,000 (+7,000)
Cash at bank 28,000
67,000
Less: Account payable -7,000 (+7,000)
60,000

Capital 60,000

Note how the liability (the account payable) is shown as a deduction from the assets.
This is exactly the same calculation as is presented in the most common form of the
accounting equation [Capital = Asset - Liabilities]

4 Sale of an asset on credit

On 10 May 2007, goods which cost $600 were sold to J Brown for the same amount,
the $ to be paid later. The effect is a reduction in the stock of goods and the creation
of a new asset. A person who owes the business $ is known in accounting language
as a debtor, and is described in the B/S as an account receivable. The B/S is now:

B Blake
Balance sheet as at 10 May 2007
Assets $
Shop 32,000
Inventory 6,400 (7,000 - 600)
Account receivable 600 (+600)
Cash at bank 28,000
67,000
Less: Account payable -7,000
60,000

Capital 60,000
5 Sale of an asset for immediate payment
On 13 May 2007, goods which cost $400 were sold to D Daley for the same amount.
Daley paid for them immediately by cheque. Here one asset, inventory, is reduced,
while another asset, cash at bank, is increased. The B/S becomes:

B Blake
Balance sheet as at 13 May 2007
Assets $
Shop 32,000
Inventory 6,000 (6,400 - 400)
Account receivable 600
Cash at bank 28,400 (28,000 + 400)
67,000
Less: Account payable -7,000
60,000

Capital 60,000

6 The payment of a liability

On 15 May 2007, Blake pays a cheque for $3,000 to D Smith in part payment of the
amount owing. The asset of cash at bank is therefore reduced, and the liability to
the creditor is also reduced. The B/S is now:

B Blake
Balance sheet as at 15 May 2007
Assets $
Shop 32,000
Inventory 6,000
Account receivable 600
Cash at bank 25,400 (28,400 - 3,000)
64,000
Less: Account payable -4,000 (7,000 - 3,000)
60,000

Capital 60,000

Note how the total of each part of the balance sheet has not changed. The business
is still worth $60,000 to the owner
7 Collection of an asset

J Brown, who owed Blake $600, makes a part payment of $200 by cheque on 31 May 2007.
The effect is to reduce on asset, account receivable, and to increase another asset,
cash at bank. The B/S becomes:

B Blake
Balance sheet as at 31 May 2007
Assets $
Shop 32,000
Inventory 6,000
Account receivable 400 (600 - 200)
Cash at bank 25,600 (25,400 + 200)
64,000
Less: Account payable -4,000
60,000

Capital 60,000