Journal Entry for Starting a Business with Rs. 150,000 in Cash and Rs. 50,000 in Inventory

Introduction
Starting a new business can be exciting, but it is crucial to maintain proper financial records to ensure compliance and facilitate decision-making. In this article, we will walk through the journal entry required when a business is initiated with an initial investment of Rs. 150,000 in cash and Rs. 50,000 in stock of goods. Understanding the accounting process is key to building a successful business.

Understanding Journal Entries

A journal entry in accounting refers to a record of a financial transaction. It typically includes debits and credits that affect the accounting equation (Assets Liabilities Shareholders' Equity). Each transaction must be recorded in the journal before it is posted to the ledger.

Journal Entry for Initial Investment

To record the initial investment in a business that includes both cash and stock of goods, the following journal entry would be made:

Debit: Cash - Rs. 150,000 Credit: Inventory Stock - Rs. 50,000 Credit: Capital Account - Rs. 200,000

Explanation of the Journal Entry

Cash*:
Cash is an asset, and it is debited when it increases due to an investment. The debit indicates an increase in the asset account. Inventory Stock:
Inventory Stock also represents an asset. It is debited to reflect the goods that the business owns and can sell. The debit increases the inventory asset account. Capital Account (Owners' Equity):
The capital account is credited to indicate the owner's investment in the business. The total investment is the sum of the cash and stock of goods. The credit increases the capital equity account.

Alternative Journal Entry

In some accounting systems, the journal entry might be simplified to show the initial investment directly to the capital account:

Debit: Cash - Rs. 150,000 Debit: Stock A/C - Rs. 50,000 Credit: Capital A/C - Rs. 200,000

Conclusion

Proper accounting practices are essential for a successful business operation. Recording the initial investment accurately ensures that the capital structure of your business is maintained and auditable. By following the appropriate journal entry process, you can establish a solid foundation for your financial records and make informed business decisions.