Journal Entry Question: Complex Capital Investment

by Rezaul Hasan
(Bangladesh)

accounting studentQ: What is the journal entry for the following transaction:


Mr. A starts his business by bringing $1000 cash, accounts receivable $500, furniture $1000 and accounts payable $1000.

A: Where an individual (an owner) invests in a business we have capital. Where we have an investment that is not a simple cash investment, we call this a complex capital investment.

The entry for this is not so difficult if you understand debits and credits and where your assets go (and liabilities too where this is brought into the business).

Here is the composite entry (a composite entry is a journal entry where you have more than one debit or credit in the same entry):

Debit Bank $1,000
Debit Accounts Receivable $500
Debit Furniture $1,000
Credit Accounts Payable $1,000
Credit Capital $1,500


The $1,500 figure for capital above is calculated as the net amount after taking the value of all assets and deducting the liabilities ($1,000 + $500 + $1,000 - $1,000 = $1,500).

By the way, you may have wondered about the accounts payable - how can someone invest accounts payable into a business? This sort of situation can exist where the owner already had a business with assets and liabilities and is buying another business (combining the two businesses). The owner is bring over his old accounts payable (liabilities) into the new business.

Hope that makes sense! Good luck!

Best,
Michael Celender

Comments for Journal Entry Question: Complex Capital Investment

Click here to add your own comments

Reply
by: Ben

This blog has been doing a great job. Accounting students could solve any doubts regarding accounting. You are providing the best solutions for the questions that are asked by the students. Go ahead with such fantastic effort!

Answer
by: [email protected]

Cash Dr. 1000
acc.receiv. Dr. 500
Furni. Dr. 1000
Acc.payable Cr. 1000
Mr. A- capital Cr. 1500

Accounting equation Capital Investment
by: Anonymous

Assets
Cash : 1000
A.R. : 500
Fur. : 1000

Total Assets: 2500



A.P.: 1000
O.E: 1500

Total Liabilities & O.E: 2500

O. Equity = Assets - Liabilities

Click here to add your own comments

Return to Ask a Question About This Lesson!.






Enjoying this Website?
Help Support it with a Donation

OR...





Advertise on Accounting-Basics-for-Students.com

Search this website:




All the lessons on this site and much, much more...

Accounting Basics: Complete Guide

Available Now On


Get Your Degree!

Find schools and get information on the program that’s right for you.

Powered by


Subscribe to
The Student Accountant newsletter

Enter Your E-mail Address
Enter Your First Name (optional)
Then

Don't worry — your e-mail address is totally secure.
I promise to use it only to send you The Student Accountant.