John Chang has been operating a plumbing business as a proprietorship (John Chang Plumbing) for four years and had the following business assets and liabilities (at their historical costs) on May 31, 2015:
Cash ........................................................ $60,000
Accounts Receivable ................................ 30,000
Shop Supplies ........................................... 10,000
Shop Equipment ....................................... 80,000
Accounts Payable ..................................... 33,000
The following events took place during the month of June 2015:
June 1 John's brother retired and sold his equipment to John for $30,000. The equipment had cost $50,000 and had a replacement cost of $38,000.
3 The business did some plumbing repairs for a customer. The business would normally have charged $1,500 for the work, but had agreed to do it for $1,000 cash in order to encourage more business from the customer.
10 The business signed a lease to rent additional shop space for the business at a cost of $3,000 per month. The business will occupy the premises effective July 1, 2015.
June 18 Finding he was low on cash, John went to the bank and borrowed $8,000 on a personal loan.
22 The value of John's equipment has doubled. John does not understand why accountants ignore the effect of inflation in the accounting records.
28 John withdrew $12,000 from the business and used $7,000 to repay the personal bank loan of June 18.
Required
Identify the accounting assumption, principle, or characteristic that would be applicable to each of the events, and discuss the effects it would have on the financial statements of John Chang Plumbing.