Question

started business with cash 40,000. traditional approach​

Answer 1

ANSWER :

★ The journal entry for the transaction "Started business with cash Rs. 40000" is :-

$: \mapsto: \: \sf{ \large{Cash \: \: A/C \: \: Dr. \: \: \: \: \: \: \: \: Rs. \: 40000}} \: \: \: \: \: \: \: \: \: \: \: \\ \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \sf{ \large{To \: \: Capital \: \: A/C\: \: \: \: \: \: \: \: \: \: \: \: \: Rs. \: 40000}} \\ \\ \sf{ \large{[Being \: \: business \: \: started \: \: with \: \: cash]}}$

$\underline{ \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: }$

EXPLANATION :

• ★ Step 1. Identification of accounts :- In this transaction, the business has received cash from the owner to start and carry out its business activities. Such amount brought in by the owner is termed as Capital and is recorded in Capital A/C. Again, the amount of Capital is brought in the form of Cash and the other account involved is Cash A/C.

• ★ Step 2. Classification of accounts :- According to Tradi Approach of classification, Capital A/C is a Personal Account and Cash A/C is a Real Account.

• ★ Step 3. Application of rules for Debit and Credit :- In the given transaction, Capital A/C is Personal Account, for which the rule to be applied is "Debit the Receiver and Credit ithe Giver". The giver of the capital is the proprietor, who represented in the business by his Capital A/C, so Capital A/C is credited. Again, Cash A/C is a Real Account, as such Cash A/C will be debited because it is being received from the proprietor, the rule being "Debit what Comes in, Credit what Goes out".