28 FARM ACCOUNTING 



His capital can be reduced in the ledger only by placing 

 the item on the left hand or debit side of the Capital ac- 

 count. 



After making the complete entry for this $6 payment 

 of interest, Mr. Arnold 's Capital account would appear as 

 shown in Illustration 5 on page 20, with only two 

 amounts in it, one debit and one credit. Cash account 

 would have three amounts entered up to this time, one 

 debit and two credits. The Capital account would have 

 $4000 on the credit side entered at the time the ledger was 

 opened, and $6 on the debit side. The Cash account would 

 have $1000 on the debit side, the amount of cash in the busi- 

 ness March 1 ; and two items on the credit side, $300 and 

 $6 respectively. 



On March 31, Mr. Arnold's narrative of events as stated 

 on page 12 shows two transactions. He pays $30 for labor, 

 and $20 for general expenses. These two classes of dis- 

 bursement are usually considered as decreasing capital 

 rather than changing its form, hence they require debits 

 to Mr. Arnold's Capital account. Cash account is credited 

 for the $30 and $20 payments, because cash is decreased 

 in amount as a result of the payments. 



Another type of transaction that requires analysis at 

 this time is the one recorded under date of April 16, on 

 page 14. It states that Mr. Arnold received a $40 check 

 for milk sold to the creamery. This is regarded as an in- 

 crease in the capital of Mr. Arnold, and is accordingly en- 

 tered on the credit side of his Capital account. The pro- 

 duction and sale of milk has caused Mr. Arnold to possess 

 more wealth. Consequently, his Capital account is credited 

 to show the addition of $40 to his wealth. Cash account is 

 debited with the $40 because the amount of cash in the 

 business has been increased. A check is considered as cash 

 in bookkeeping. 



We might proceed to take up each of the other trans- 



