Journal Entry Question: Complex Capital Investment

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.

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!


Comments for Journal Entry Question: Complex Capital Investment

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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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