DO IT! 1 Normal Account Balances Action Plan Kate Browne has just rented space in a shopping mall. In this space, she will open a hair Determine the types salon to be called "Hair It Is." A friend has advised Kate to set up a double-entry set of of accounts needed. accounting records in which to record all of her business transactions. Kate will need asset Identify the balance sheet accounts that Kate will likely need to record the transac- accounts for each tions needed to open her business. Indicate whether the normal balance of each account different type of asset is a debit or a credit. she invests in the business and liability Solution accounts for any debts she incurs. Kate would likely need the following accounts in which to record the transactions Understand the types necessary to ready her hair salon for opening day: of owner's equity accounts. Only Cash (debit balance) If she borrows money: Notes Payable Owner's Capital will Equipment (debit balance) (credit balance) be needed when Kate begins the business. Supplies (debit balance) Owner's Capital (credit balance) Other owner's equity Accounts Payable (credit balance) accounts will be needed later. Related exercise material: BE2-1, BE2-2, E2-1, E2-2, E2-4, and Dom 2-1.DO IT! 2 Recording Business Activities Kate Browne engaged in the following activities in establishing her salon, Hair It Is: 1. Opened a bank account in the name of Hair It Is and deposited $20,000 of her own money in this account as her initial investment. 2. Purchased equipment on account (to be paid in 30 days) for a total cost of $4,800. 3. Interviewed three people for the position of hair stylist. Prepare the entries to record the transactions. Solution Action Plan The three activities would be recorded as follows. Understand which 1. Cash 20,000 activities need to be Owner's Capital 20,000 recorded and which (Owner's investment of cash in business) do not. Any that affect assets, liabilities, or 2. Equipment 4,800 owner's equity should Accounts Payable 4,800 be recorded in a (Purchase of equipment on account) journal. 3. No entry because no transaction has occurred. Analyze the effects of transactions on asset, Related exercise material: BE2-3, BE2-4, BE2-5, BE2-6, E2-3, E2-5, E2-6, E2-7, and DOIT! 2-2. liability, and owner's equity accounts