I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

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Solution

 

There are a number of different transactions to account for here. This solution deals with them one at a 

time in chronological order. (In practice, it is possible to do one set of calculations which combines the 

results of all the transactions.) 

(i) 

The addition of Liza's extra capital and Uncle Henry's loan 

An investment analyst might call Uncle Henry's loan a capital investment on the grounds that it 

will probably be for the long term. Uncle Henry is not the owner of the business, however, even 

though he has made a loan to it. He would only become an owner if Liza offered him a 

partnership in the business, and she has not done so. To the business, Uncle Henry is a 

long-term payable, and it is more appropriate to define his investment as a liability of the 

business and not as business capital. 

The accounting equation after $(250 + 500) = $750 cash is put into the business will be: