An easy question

[andy456]

Exercise 2.6 Transactions and the Balance Sheet

The unclassified Balance Sheet for Pete’s Paint Emporium as at 31 March 2010 showed:
Assets $                                                              Equities $
Bank 2 300                                                           Creditors 9 000
Debtors 8 000                                                       Wages owing 2 000
Fixtures and Fittings 18 000
Delivery Van 25 000
Stock 24 000                                                        Capital – Pete ?
Total Assets $ 77 300                                            Total Equities $ 77 300

In the first week of April, the following transactions occurred:
Apr. 1 paid $3000 to a creditor
2 received $28 000 cash via a loan from NAB which was used to purchase another
van. (The loan is to be repaid in monthly instalments of $1000, commencing in
May 2010).
3 received $2400 from a debtor
4 Pete withdrew $1500 paint for his own purposes
5 paid the wages owing
6 Pete contributed his personal computer worth $4000 to the business
Required
a. Calculate Capital as at 31 March 2010.
b. Prepare a table to show the effect of each transaction on the Balance Sheet of Pete’s Paint
Emporium.
c. Prepare a classified Balance Sheet for Pete’s Paint Emporium as at 6 April 2010.

OK I'm trying to understand the basics of accounting and I need help with this question. It says on April 1 he paid $3000 to creditors. Where does this 3000 come from? I would have first assumed the bank but that would result in an overdraw (right word??) so where does it come from? My next guess is from pete's capital
Any help would be greatly appreciated

[luffy]

Exercise 2.6 Transactions and the Balance Sheet

The unclassified Balance Sheet for Pete’s Paint Emporium as at 31 March 2010 showed:
Assets $                                                              Equities $
Bank 2 300                                                           Creditors 9 000
Debtors 8 000                                                       Wages owing 2 000
Fixtures and Fittings 18 000
Delivery Van 25 000
Stock 24 000                                                        Capital – Pete ?
Total Assets $ 77 300                                            Total Equities $ 77 300

In the first week of April, the following transactions occurred:
Apr. 1 paid $3000 to a creditor
2 received $28 000 cash via a loan from NAB which was used to purchase another
van. (The loan is to be repaid in monthly instalments of $1000, commencing in
May 2010).
3 received $2400 from a debtor
4 Pete withdrew $1500 paint for his own purposes
5 paid the wages owing
6 Pete contributed his personal computer worth $4000 to the business
Required
a. Calculate Capital as at 31 March 2010.
b. Prepare a table to show the effect of each transaction on the Balance Sheet of Pete’s Paint
Emporium.
c. Prepare a classified Balance Sheet for Pete’s Paint Emporium as at 6 April 2010.

OK I'm trying to understand the basics of accounting and I need help with this question. It says on April 1 he paid $3000 to creditors. Where does this 3000 come from? I would have first assumed the bank but that would result in an overdraw (right word??) so where does it come from? My next guess is from pete's capital
Any help would be greatly appreciated

It reduces bank by 3000. Yes, it is an "overdraw" and results in a "bank overdraft". i.e. the business owes this cash to the bank and it becomes a current liability of the business.
- Also, creditors decreases by $3000.

[andy456]

so i would write bank as 0 and in liabilities creditorss 6000 and bank ovwrdraft 700 or is writing bank as -700 allowed?

Thanks, it just seems strange to me that a business would do something like that

[nacho]

Na, as the bank is no longer considered an asset, you would not write it down at all,
rather you would write "bank overdraft" with a balance of 700.
and yes, you're correct in saying that creditors have a balance of 6000.

accounts will generally not have negative balances as this is not possible (eg. If a business has $10,000 worth of stock at hand, it cannot donate $11,000 worth of stock (unless it buys more), and leave itself with a balance of -1000)
In the case of bank, once the business takes out more money than it has in balance, it no longer has the asset bank, but a (current) liability called "Bank overdraft", which will be the amount by which the business has overdrawn.

Btw, nice job with legal!