Financial Condition
At the beginning of the summer, Jack Wells was looking for a way to earn money to pay for his college tuition in the fall. He decided to start a lawn service business in his neighborhood. To get the business started, Jack used $6,000 from his savings account to open a checking account for his new business, Elegant Lawn Care. He purchased two used power mowers and various lawn care tools for $2,000, and paid $3,600 for a second-hand truck to transport the mowers.
Several of his neighbors hired him to cut their grass on a weekly basis. He sent these customers monthly bills. By the end of the summer, they had paid him $1,200 in cash and owed him another $2,300. Jack also cut grass on an as-needed basis for other neighbors who paid him $1,000.
During the summer, Jack spent $400 for gasoline for the truck and mowers. He paid $1,000 to a friend who helped him on several occasions. An advertisement in the local paper cost $200. Now, at the end of the summer, Jack is concerned because he has only $1,000 left in his checking account. He says, “I worked hard all summer and have only $1,000 to show for it. It would have been better to leave the money in the bank.”
Explain to Jack whether or not he is “better off” than he was at the beginning of the summer. Organize the data using T-accounts.
Struggling with where to start this assignment? Follow this guide to tackle your assignment easily!
Step 1: Understand the Problem
Jack Wells started a lawn care business with his savings to pay for college but is unsure if he is financially better off after working all summer. Your task is to analyze his financial condition using T-accounts, which are a simple way to organize and summarize financial transactions.
Step 2: Identify the Key Transactions
Jack’s financial transactions include:
- Initial investment: $6,000 (from savings)
- Purchases:
- Mowers & tools: $2,000
- Truck: $3,600
- Revenue (money earned):
- Recurring customers (paid): $1,200
- Recurring customers (owed): $2,300
- One-time customers (paid): $1,000
- Expenses:
- Gasoline: $400
- Helper’s wages: $1,000
- Advertisement: $200
- Cash left in the account: $1,000
Step 3: Set Up the T-Accounts
T-accounts are structured as follows:
- Assets (What Jack owns)
- Cash (Checking Account)
- Equipment (Mowers, Tools, Truck)
- Accounts Receivable (Unpaid customer bills)
- Liabilities (What Jack owes)
- None in this case (since he didn’t borrow money)
- Expenses (Costs incurred during the summer)
Here’s an example of how to set up the T-accounts:
| Cash (Asset) | Amount ($) |
|---|---|
| Beginning Balance | 6,000 |
| Revenue Received | 2,200 (1,200 + 1,000) |
| Expenses (Gas, Wages, Ads) | (1,600) |
| Ending Balance | 1,000 |
| Equipment (Asset) | Amount ($) |
|---|---|
| Mowers & Tools | 2,000 |
| Truck | 3,600 |
| Accounts Receivable (Money Owed to Jack) | Amount ($) |
|---|---|
| Unpaid Customer Bills | 2,300 |
Step 4: Evaluate Jack’s Financial Position
Even though Jack only has $1,000 left in cash, he still owns:
$5,600 worth of equipment (which he can sell or use next season) $2,300 in customer payments pending (money he will collect later) $1,000 cash in the bank
Total assets: $8,900 (better than his initial $6,000 investment).
Step 5: Answer the Question Clearly
Jack is actually better off financially:
His assets have increased to $8,900 from $6,000. His business is now established, meaning future earnings may be even higher. If he collects the outstanding $2,300, his cash flow will improve.
Though he doesn’t have much cash immediately, the value of his business and equipment means he gained financially compared to just keeping his money in the bank.
Final Tip:
When writing your paper, make sure to: Structure your response clearly (Introduction, T-Account Breakdown, Conclusion) Use calculations to support your argument Explain your reasoning concisely
Now, go ahead and break down the problem with confidence! 
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