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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle

Ravi Kumar, a trader, started business with cash Rs 2,00,000 and also brought in his personal car valued at Rs 3,00,000. The correct opening journal entry is:

Debit Cash Rs 2,00,000 and Car Rs 3,00,000, and credit Capital Rs 5,00,000. Both assets come into the business so they are debited, and the owner's investment is credited to Capital because the business owes that amount to the proprietor.

  1. ACash A/c Dr 2,00,000 and Car A/c Dr 3,00,000 to Capital A/c 5,00,000Correct
  2. BCash A/c Dr 2,00,000 to Capital A/c 2,00,000 only, as a car is not a business asset
  3. CCash A/c Dr 5,00,000 to Capital A/c 5,00,000
  4. DCapital A/c Dr 5,00,000 to Cash A/c 2,00,000 and Car A/c 3,00,000

Explanation

Both cash and car are assets coming into the business, so both are debited (2,00,000 + 3,00,000 = 5,00,000). Capital is a liability to the proprietor and is credited with the total of 5,00,000. Debiting Capital would reverse the entry.

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