When starting a business with initial capital, the journal entry records the contribution of capital by the owner(s). This capital could be in the form of cash, assets, or a combination of both. Below is the standard journal entry for starting a business with capital in the form of cash.
Journal Entry for Starting Business with Capital
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-01-01 | Cash/Bank A/c | 100,000 | |
| To Capital A/c | 100,000 | ||
| (Being capital introduced into the business) |
Explanation:
- Cash/Bank A/c is debited because the business is receiving cash.
- Capital A/c is credited because the owner's equity in the business is increasing.
Example with Different Capital Forms
Scenario: The business is started with ₹70,000 in cash and ₹30,000 worth of equipment.
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-01-01 | Cash/Bank A/c | 70,000 | |
| Equipment A/c | 30,000 | ||
| To Capital A/c | 100,000 | ||
| (Being capital introduced into the business: ₹70,000 cash and ₹30,000 equipment) |
In this example:
- Cash/Bank A/c is debited for the cash introduced.
- Equipment A/c is debited for the value of the equipment introduced.
- Capital A/c is credited for the total value of capital introduced (cash + equipment).
This setup accurately reflects the initial capital contribution in the company's books, laying the foundation for proper financial management and reporting.
