Canada Help with my accountancy exercise, very simple, thanks!

Jul 20, 2018
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I am doing a bookkeeping exercise that is in my book. It says: Kenneth Lee operates a computer software business. He has a $16.000 cash balance. New equipment needed to develop the latest type of programs for his clients will cost $20.000. This will require some borrowing in order to pay for it. Lee wants to use $6.000 of cash from his business arranging a bank loan for the balance. What will be in the amount of the loan? what changes will occur in the fundamental bookkeeping equation as a result of the loan?

So the way I understood the concepts and this particular situation, I said in my answer: Loan amount: $14.000

Asset Liability Owners equity
$20.000 $14.000 $6.000
___________ _____________________________
$20.000 $20.000
However, when I checked the answers, as answer shows:
Loan for $14.000 ($20.000-$6.000)
Fundamental equation:
Assets increase $14.000 Liabilities increase $14.000, OE no change.

To me it makes no sense because when they purchase the equipment for $20.000 you cannot say the entrance to the company assets are $14.000, also he is putting money from his pocket to buy something for the company, so means he is investing or putting more capital, where it shows that in the answer?

I hope someone out there can help me to clarify these ideas. Thank you



VIP Member
Oct 12, 2011
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United States
He is using company money to put down payment on equipment. So he buys an asset of 20 less 6 in cash to pay from company funds for a net asset increase of 14. I think you assumed it came out of his pocket which I agree was not clear in the text.

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