THE LEDGER S3 



capital during the year. The sum of the first three items 

 on the left side of the statement is $1000, representing ex- 

 penses or decreases in capital during the year. The bal- 

 ance, then, shows the net income, net profit or net gain 

 and represents the net increase in capital during the year. 

 This increase is verified by referring to Arnold's capital 

 account which shows $4000 capital March 1, 1916, and 

 $5000 on March 1, 1 1917, an increase of $1000. 



ILLUSTRATIVE PROBLEMS 



1. Mr. Allen has property valued at $5000 in cash, horses, 

 cattle and equipment at the beginning of the year. He owes 

 $1000 on a note at that time. At the close of the year his Cash, 

 Horses, Cattle and Equipment accounts show exactly the same 

 balances as at the beginning, but his note payable account is 

 closed. 



(a) What was the balance of his Capital account at the be- 

 ginning of the year? 



(b) At the close of the year? 



(c) What was his net gain during the year? 



(d) If a gain results in an increase in capital, why do the 

 property accounts not show an increase in value at the close 

 of the year? 



2. Using ordinary ledger paper, create accounts and the debits 

 and credits necessary therein to interpret the following transac- 

 tions in accordance with the bookkeeping abbreviations and prin- 

 ciples learned up to the present time: 



March 1, 1916, George Woods starts keeping his accounts in 

 a systematic way and accordingly values his possessions as fol- 

 lows: Cash $600, owing by Thos. Carey $100, cattle $800, poul- 

 try $200, swine $900, horses $1200, equipment $600, land $8000, 

 buildings $5500. He owes $8000 on a mortgage note. 



1 March 1 and February 28 are used interchangeably as occasion 

 requires. The statements are prepared after all transactions are 

 entered February 28, and before any are entered on March 1. 



