What is the journal entry when starting a business?
When a business owner starts a business, they usually invest money or assets in the business. This is recorded by debiting cash or bank (which is a asset) and crediting the capital account (which is a owner’s equity).
Example 1: Starting a Business with Cash
Transaction: The owner starts the business and invests $50,000 cash in the business.
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 2025-04-16 | Cash | 50,000 | |
| Owner’s Capital | 50,000 |
Example 2: Starting with Bank Account
Transaction: The owner deposits $75,000 in business bank account.
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 2025-04-16 | Bank Account | 75,000 | |
| Owner’s Capital | 75,000 |
Example 3: Starting with Cash and Assets
Transaction: The owner contributes $20,000 cash and furniture worth $5,000 to buisness.
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 2025-04-16 | Cash | 20,000 | |
| Furniture | 5,000 | ||
| Owner’s Capital | 25,000 |
Example 4: Starting with Equipment
Transaction: The owner starts a business with equipment worth $30,000.
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 2025-04-16 | Equipment | 30,000 | |
| Owner’s Capital | 30,000 |
The double-entry rule must be applied in journal entries. For every debit, there must be a corresponding credit. The total of debits and credits must always be equal.
Tip: These entries apply to sole proprietorships. For partnerships or corporations, capital accounts may vary by partner/shareholder.