When a businessperson starts his business, he must invest cash.
He can start business with cash, stock (business goods) and fixed assets.
Generally, there are four types of business; sole proprietorship, partnership, private limited company and limited company.
It is basic journal entry; so we are going to study according to sole proprietorship.
According to Trading Firm
Cash account |
Dr |
Cash introduction |
Increase asset |
Bank account |
Dr |
Account open (bank balance) |
Increase asset |
Stock (Inventory) account |
Dr |
Value of business goods |
Increase asset |
Plant and machinery account |
Dr |
Value of assets |
Increase asset |
Land and building account |
Dr |
Value of assets |
Increase asset |
Furniture and fitting account |
Dr |
Value of assets |
Increase asset |
Computer and equipment account |
Dr |
Value of assets |
Increase asset |
Other assets account ………………… |
Dr |
Value of assets |
Increase asset |
To Capital account |
|
Total capital |
Increase liability |
(Being- business started with ……………… |
|
|
|
Journal Entry
In the book of EP Trading Firm
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Cash account |
Dr |
|
xxxxx |
|
|
Bank account |
Dr |
|
xxxxx |
|
|
Stock (inventory) account |
Dr |
|
xxxxx |
|
|
Plant and machinery account |
Dr |
|
xxxxx |
|
|
Land and building account |
Dr |
|
xxxxx |
|
|
Furniture and fitting account |
Dr |
|
xxxxx |
|
|
Computer and equipment account |
Dr |
|
xxxxx |
|
|
Other assets account ……………………………. |
Dr |
|
xxxxx |
|
|
To Capital account |
Dr |
|
|
xxxxx |
|
(Being- business started with ………………….……) |
|
|
|
|
#######
Click on link for YouTube videos topic wise : |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger Account |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance and Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Click on link for YouTube videos chapter wise: |
|
Financial Accounting and Analysis (All videos) |
|
Accounting Process |
|
Accounting for Long Lived Assets |
|
Analysis of Financial Statement |
#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 1A
On 26th January 2020, Mr Saran started business with cash $/₹/Rs 1,50,000
Required: Journal entry
[Answer: Capital = 1,50,000]
SOLUTION:
Journal Entry
In the book of Mr Saran
Date |
|
|
LF |
Dr Amount |
Cr Amount |
2020 |
Cash account |
Dr |
|
1,50,000 |
|
Jan, 26 |
To Capital account |
|
|
|
1,50,000 |
|
(Being- business started by Saran with cash) |
|
|
|
|
Or
Journal Entry
In the book of Mr Saran
Date |
|
|
LF |
Dr Amount |
Cr Amount |
2020 |
Cash account |
Dr |
|
1,50,000 |
|
Jan, 26 |
To Saran’s capital account |
|
|
|
1,50,000 |
|
(Being- business started with cash) |
|
|
|
|
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
Jan, 26 |
Cash account |
|
150,000 |
|
|
To Capital account |
|
|
150,000 |
|
To record business started with cash |
|
|
|
Journal Entry for European Style
Date |
|
|
|
€ |
€ |
Jan, 2 |
Cash account |
Dr |
|
150,000 |
|
|
To Capital account |
|
|
|
150,000 |
|
To record business started with cash |
|
|
|
|
PROBLEM: 1B
On 18th April, Mr Aman began business with cash Rs 150,000; bank Rs 50,000
Required: Journal entry
[Answer: Capital = 200,000]
SOLUTION:
Journal Entry
In the book of Mr Aman
Date |
|
|
LF |
Amount Dr |
Amount Cr |
June, 10 |
Cash account |
Dr |
|
150,000 |
|
|
Bank account |
Dr |
|
50,000 |
|
|
To Capital account |
|
|
|
200,000 |
|
(Being- business started by Aman with cash and bank) |
|
|
|
Or
Journal Entry
In the book of Mr Aman
Date |
|
|
LF |
Amount Dr |
Amount Cr |
June, 10 |
Cash account |
Dr |
|
150,000 |
|
|
Bank account |
Dr |
|
50,000 |
|
|
To Aman’s capital account |
|
|
|
200,000 |
|
(Being- business started by Aman with cash and bank) |
|
|
|
PROBLEM: 1C
On 2nd April, Ms Anita commenced a beauty parlour business with cash Rs 50,000; cosmetics Rs 1,80,000 and furniture Rs 80,000.
Required: Journal entry
[Answer: Capital = 310,000]
SOLUTION:
Journal Entry
In the book of Ms Anita
Date |
|
|
LF |
Amount Dr |
Amount Cr |
June, |
Cash account |
Dr |
|
50,000 |
|
10 |
Stock (inventory) account |
Dr |
|
1,80,000 |
|
|
Furniture account |
Dr |
|
80,000 |
|
|
To Capital account |
|
|
|
3,10,000 |
|
(Being- business started by Anita with cash, stock and furniture) |
|
|
|
PROBLEM: 1D
On 15th March, Mr Ajay commenced a business named AK Traders with cash Rs 30,000; bank Rs 200,000; computer and equipment Rs 70,000; stock (inventory) Rs 5,00,000 and furniture Rs 50,000.
Required: Journal entry
[Answer: Capital = 850,000]
SOLUTION:
Journal Entry
In the book of AK Traders
Date |
|
|
LF |
Amount Dr |
Amount Cr |
March, 15 |
Cash account |
Dr |
|
30,000 |
|
|
Bank account |
Dr |
|
2,00,000 |
|
|
Computer and equipment |
Dr |
|
70,000 |
|
|
Stock (inventory) account |
Dr |
|
5,00,000 |
|
|
Furniture account |
Dr |
|
50,000 |
|
|
To Capital account |
|
|
|
8,50,000 |
|
(Being- business started by Ajay with cash, bank, computer, |
|
|
|
|
|
equipment, stock and furniture) |
|
|
|
PROBLEM: 1E
On 10th June, Mr Deepak commenced napkin paper industry named Deepson Paper with cash Rs 40,000; bank Rs 80,000; equipment Rs 50,000; stock Rs 200,000; furniture Rs 20,000; plant and machinery Rs 800,000.
Required: Journal entry
[Answer: Capital = 12,00,000]
SOLUTION:
Journal Entry
In the book of Deepson Paper
Date |
|
|
LF |
Amount Dr |
Amount Cr |
June, 10 |
Cash account |
Dr |
|
40,000 |
|
|
Bank account |
Dr |
|
80,000 |
|
|
Equipment account |
Dr |
|
50,000 |
|
|
Stock account |
Dr |
|
2,00,000 |
|
|
Furniture and fitting account |
Dr |
|
30,000 |
|
|
Plant and machinery account |
Dr |
|
8,00,000 |
|
|
To Capital account |
|
|
|
12,00,000 |
|
(Being- business started with cash, bank, equipment, stock, |
|
|
|
|
|
furniture, plant and machinery) |
|
|
|
Business Commenced of Private Limited and Limited Company
Private Limited Company, Limited Liabilities Company, Limited Company or Joint Stock Company starts its business by issuing common stock (equity shares, ordinary share).
These companies first issue equity shares to the public; then they collect money from public.
After collecting cash, they purchase land, building, machinery, equipment, materials, inventory etc according to their need.
Journal Entry
In the book of EP LLC
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Cash account |
Dr |
|
xxxxx |
|
|
Bank account |
Dr |
|
xxxxx |
|
|
To Common shares capital (equity shares) |
|
|
|
xxxxx |
|
(Being- business commenced with cash/bank and converted into xxxx common stock of $/₹/Rs … each) |
|
|
|
|
Problem: 1F Business commenced of limited company
EP LLC invested cash Rs 50,00,000 to commenced business by converted 50,000 common stock of Rs 100 each.
Required: Journal entry
SOLUTION
Journal Entry
In the book of EP LLC
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Bank account |
Dr |
|
50,00,000 |
|
|
To Common shares capital (equity shares) |
|
|
|
50,00,000 |
|
(Being- business commenced with bank 50,00,00 and converted into 50,000 common stock @ Rs 100) |
|
|
|
|
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 1 BUSINESS START
The following extracted information is given to you related to business started from different sources:
(a) On 16th January,
Mr Ajay started business with cash Rs 120,000.
(b) On 18th June,
Mr Amar began business with cash Rs 130,000; bank Rs 70,000.
(c) On 1st April
Ms Anju commenced a business with cash Rs 10,000; stocks Rs 150,000 and furniture Rs 30,000.
(d) On 15th March,
Mr Pawan commenced a business named PS Traders with cash Rs 50,000; bank Rs 80,000; equipment Rs 70,000; stock Rs 250,000 and furniture Rs 60,000.
(e) On 10th June,
M/s EP Traders commenced business with cash Rs 30,000; bank Rs 40,000; equipment Rs 50,000; stock Rs 150,000; furniture Rs 60,000; land and building Rs 800,000.
(f) On 5th Sep,
EP Company Limited commenced business with bank Rs 75,00,000; by converting 75,000 equity shares of Rs 100 each.
Required: Journal entries
[Answer: Capital: (a) 120,000; (b) 200,000; (c) 190,000;
(d) 510,000; (e) 11,30,000; (f) 75,00,000]
***** #EPOnlineStudy *****
Thank you for investing your time.
Please comment on article.
You can help me by sharing this article at your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मिडिया