Jordan's first week washing cars | Bookkeeping Basics

Jordan starts a mobile car-wash business. Here are the first week's transactions and how each one is recorded.

#	Transaction	Debit	Credit	Amount
1	Jordan puts $2,000 of savings into the business account	Cash	Owner's capital	$2,000
2	Buys a pressure washer with cash	Equipment	Cash	$600
3	Washes 8 cars at $40 each, paid on the spot	Cash	Service revenue	$320
4	Pays for social media ads	Advertising expense	Cash	$80
5	Washes 5 vans for a local company, which will pay in 30 days	Accounts receivable	Service revenue	$250
6	Buys fuel on a supplier account, to be paid next month	Fuel expense	Accounts payable	$120

Checking the balance

After the week, here's where things stand:

Assets	Amount	Liabilities and equity	Amount
Cash ($2,000 − $600 + $320 − $80)	$1,640	Accounts payable	$120
Accounts receivable	$250	Owner's capital	$2,000
Equipment	$600	Profit for the week ($570 − $200)	$370
Total assets	$2,490	Total liabilities and equity	$2,490

Both sides equal $2,490, so the books balance. Profit is part of equity because it belongs to the owner.

Cash versus accrual in action

Under accrual accounting, Jordan's profit for the week is $370: $570 of revenue earned minus $200 of expenses incurred. Under cash accounting, it's $240: $320 of cash received minus $80 of expenses paid. The van job and the fuel bill don't count yet because no cash has moved.

Notice that the pressure washer isn't an expense in either case. It's equipment the business will use for years, and its cost is spread over its useful life through depreciation, which you'll meet in more advanced courses.