Journal Entry Example: Complex Capital Investment by Owner
(Compound Entry)

by Rezaul Hasan

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.

Where an individual (an owner) invests in a business we have capital. Capital is part of owner's equity.

Where we have an investment that is not a simple cash investment by the owner or which involves investing multiple assets, we call this a complex capital investment.

Because this capital investment includes multiple assets, we do what is known as a compound journal entry (or composite entry).

A compound journal entry is a journal entry where you have more than one debit or credit in the same entry.

This entry is not so difficult if you understand debits and credits and the typical entries for assets, owner's equity and liabilities. However it's a bit more complicated than a normal single debit and credit entry.

Here is the full journal entry for the owner's complex capital investment:

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).

Bank, accounts receivable and furniture are assets. Since assets occur on the debit side, we debit these items.

Accounts payable is a liability account. Since liabilities occur on the credit side, we credit it.

And capital of course is owner's equity, which occurs on the credit side.

By the way, you may have wondered about the accounts receivable and payable that this guy is bringing in - how can someone invest these items 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 bringing over his old accounts receivable (debtors) and accounts payable (creditors) into the new business.

Hope that makes sense! Good luck!

Michael Celender
Founder of Accounting Basics for Students

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Comments for Journal Entry Example: Complex Capital Investment by Owner
(Compound Entry)

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practically the formula
by: Anonymous

Assets - Liabilities = Capital
It is simple but we don't calculate like this in entries. It is a formula to find capital, hope this helps.

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!

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

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

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