Initial Investment Journal Entry
An initial investment is the capital introduced into a business by the owner or investors at the time of its formation. This capital is essential for starting operations and acquiring initial assets.
Scenario:
An individual starts a new business by investing ₹150,000 in cash.
Recording the Initial Investment
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 150,000 | |
| To Capital A/c | 150,000 | |
| (Being initial capital introduced into the business) |
Explanation:
- Cash/Bank A/c is debited to increase the cash balance of the business.
- Capital A/c is credited to record the owner's equity in the business.
Alternative Scenario:
If the initial investment includes both cash and non-cash assets, such as equipment.
Example:
An individual invests ₹100,000 in cash and equipment worth ₹50,000.
Recording the Initial Investment
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 100,000 | |
| Equipment A/c | 50,000 | |
| To Capital A/c | 150,000 | |
| (Being initial capital introduced into the business, including equipment) |
Explanation:
- Cash/Bank A/c is debited to increase the cash balance of the business.
- Equipment A/c is debited to record the value of the equipment contributed.
- Capital A/c is credited to record the total owner's equity in the business.
