Transaction Details
On December 1, 2019, a business was commenced with an initial cash investment of Rs 60,000. This transaction involves two accounts in the double-entry accounting system: the Cash account and the Capital account.
Journal Entry
The journal entry for this transaction would be recorded as follows:
- Date: December 1, 2019
- Account Title: Cash Account (Debit)
- Amount: Rs 60,000
- Account Title: Capital Account (Credit)
- Amount: Rs 60,000
Explanation of the Journal Entry
- Debit Cash Account:
- The Cash account is debited because the business is receiving cash.
- This increases the asset side of the balance sheet.
- Credit Capital Account:
- The Capital account is credited to reflect the owner's investment in the business.
- This increases the equity section of the balance sheet.
Impact on Financial Statements
- Balance Sheet:
- Assets will increase by Rs 60,000 under Cash.
- Equity will increase by Rs 60,000 under Capital.
- Accounting Equation:
- The basic accounting equation (Assets = Liabilities + Equity) remains balanced as both sides increase by the same amount.
Summary
This transaction signifies the establishment of the business and represents the owner's initial commitment of funds, laying the groundwork for future operations and financial activities.