A business's first week — three entries
Rico opens a lawn-care company: he invests $5,000 cash; buys a $3,000 mower paying $1,000 down with the rest on a note; and finishes his first job for $400 cash. Journalize the week.
The journal entry
Day 1 — owner invests $5,000
| Account | Debit | Credit |
|---|---|---|
| Cash | $5,000 | |
| Owner's Capital | $5,000 |
Day 2 — $3,000 mower: $1,000 cash + $2,000 note
| Account | Debit | Credit |
|---|---|---|
| Equipment | $3,000 | |
| Cash | $1,000 | |
| Notes Payable | $2,000 |
Day 5 — first job done, $400 cash
| Account | Debit | Credit |
|---|---|---|
| Cash | $400 | |
| Service Revenue | $400 |
- Cash (debit): The business's first asset.
- Owner's Capital (credit): Contribution, not earnings.
- Equipment (debit): The asset records at its FULL cost regardless of how it's financed.
- Cash (credit): Cash covers part.
- Notes Payable (credit): A creditor's claim is born — a liability.
- Cash (debit): This time cash and earning happen together.
- Service Revenue (credit): The first dollar the business ever EARNED.
Remember this
- tip
Compound entries (3+ lines) are ordinary — the only law is total debits = total credits. Read the event, list what moved, balance it.
- watchout
Assets record at FULL cost no matter the financing mix. The payment plan splits the CREDITS, never the debit.