Case Study No 1: Starting Your Own Business

The objective of this study case on Starting Your Own Business allows the readers to:

  • To discuss the revenue and expenses of a small service business
  • To explain how investments made by a business owner affect the accounting equation
  • To apply the basic accounting equation
  • To discuss the type of organization on starting and expanding the business


Jimmy Lee is a recently qualified CPA who has earlier worked in the auditing, taxation and consultancy side of a reputable professional accounting firm.

Jimmy started a public accounting firm, a sole proprietorship called Jimmy & Co which provides accounting and auditing.

He has invested on the relevant items to start his business. Besides, he has also bought a car to travel to canvas for clients instead of earlier using public conveyance.

Jimmy employed one staff. He and his staff cater to small business owners by keeping their books of accounts using ACCPAC computerized accounting systems. On a periodical basis, he forwarded financial reports to his clients and advise them accordingly. He also looks into his clients’ system and offer services like establishing proper costing system and other important management accounting services. Every time he completes a certain project/assignment, he would bill his clients on an adhoc project basis. However, when the proposed assignment/project takes a period longer than three months, his firm would bill the clients on a progressive basis.

As a registered public accountant, he also perform routine audits like interim and final audits to ensure that his firm, Jimmy & Co can give an opinion on the clients’ financial statements. After completion of his interim audits, the firm would bill for reimbursements for expenses incurred and part of the agreed audit fee.

[ Time required to answer this case study:#1 hour ]


1.0 Jimmy Lee started his consultancy company, what do you think are some investments he made and how would each affect the basic acco unting equation?

2.0 What can be the assets and liabilities of Jimmy Lee’s sole proprietorship?

3.0 Identify and classify the accounts affected if Jimmy Lee receives cash payment from his clients for monthly billings, periodical/progressive billings and reimbursement of expenses,etc?

4.0 Identify and classify the accounts affected if Jimmy Lee were to issue a check to pay for fixed assets like photocopying machine and furniture and fittings to be used in his company?

5.0 What kinds of revenues does Jimmy Lee’s company receive?

6.0 What kinds of expenses might Jimmy Lee’s company incur?

7.0 Which type/form of business organization has Jimmy Lee chosen for his business?

8.0 Why do you think that this form he selected is suitable for him?

9.0 What are the benefits of this form of organization?

10.0 If Jimmy Lee took some monies from petty cash and used it for his personal use

11.0 What type of business do you think Jimmy Lee’s business relates to- service, merchandising or manufacturing business?

12.0 If he wants to offer to expand into more specialized services like insolvency, direct and indirect taxation, etc, what would he do ? More staff? Convert to another form of organization?

13.0 What is the basic accounting equation?

14.0 If he had bought fixed assets like photocopying machines, furnitures and fixtures,computers, how are these items being reflected in the basic accounting equation?

15.0 Expenses and revenues – how are they being reflected in the basic accounting equation?

16.0 Is sole proprietorship the easiest type/form of organization to start? If yes, please justify.

[ The above case study is useful also for classroom discussion amongst the students. The students are strongly encourage to search the internet on similar topics on starting the business and the various type/form of organization with the pro and cons- check out the resource in this site]

[ In this site read: Types of Organization , Dual Aspect Of Accounting , accounting principles/concepts]

Also check out another article on Case Study No.2 re: Controlling/Managing Your Business

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