Tiffany Collins is the owner and operator of an interior decorating business called "Tiffany's," It is Tiffany's first year in business. Tiffany started her business with a personal cash investment of $20,000. She also borrowed $20,000 from the Bank. By the end of the first year Tiffany's cash was down to $7,000. Tiffany's only other assets were $18,000 of receivables from customers and $50,000 of new equipment which she bought at the end of the year. During her first year, Tiffany managed to lower her debt - she now owes the Bank only $15,000. The Bank loan is her only debt. There were no withdrawals from the business this year.

Since Tiffany's only has $7,000 of the cash that she started with, she is considering going out of business Tiffany has told you "how can I stay in business when, in only 1 year, I have lost $13,000 of the $20,000 I started with.

Advise Tiffany. Is Tiffany's personal assessment correct? Is she better off now than she was at the beginning of the year? What is the amount of capital she started with? what is her ending Capital? Without knowing the individual Revenue and Expense numbers is it possible to precisely compute Tiffany's first year net income? How much net income did Tiffany's earn her first year in business. Answer all parts of this question. (Hint: your knowledge of the accounting equation will be essential to your answers)