Journal entry: Business Started, Business Commenced, Trading Firm

 

How to make journal entry for business start, business commence and business begin

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.

 

Business Started, Began and Commenced

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 ………………….……)

 

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Click on link for YouTube videos topic wise :
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger Account	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on link for YouTube videos chapter wise:
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 1A

On 26^th 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 18^th 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 2^nd 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 15^th 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 10^th 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 16^th January,

Mr Ajay started business with cash Rs 120,000.

 

(b) On 18^th June,

Mr Amar began business with cash Rs 130,000; bank Rs 70,000.

 

(c) On 1^st April

Ms Anju commenced a business with cash Rs 10,000; stocks Rs 150,000 and furniture Rs 30,000.

 

(d) On 15^th 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 10^th 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 5^th 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]

 

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