Journal entry for starting business with borrowed funds.

What will be the journal entry for Started business with rs. 15,000 borrowed from friend at 12% per annum?

asked Aug 19, 2015 in Journal Entries by Mahima (23 points) 34,785 views

1 Answer

0 votes
This transaction can be recorded in two ways, depending on the preference of the owner of business.
First option is to treat the loan taken from a friend as a personal traansaction and not record in the books of the business. This money is then used to start the business.. This transaction should be recorded in the books of business.  This transaction has two aspects i.e. (1) cash has been received by business, hence Cash A/c will be debited. (2) This money has been given to business by the proprietor, hence Capital A/c should be credited.
Cash A/c   Dr.      15000
  To Capital A/c                      15000
Second option is to record the loan transaction in the books of the business.  Entry for that wii be:
Cash A/c          Dr.   15000
  To  12% Loan A/c                       15000
Personally I would prefer the second option because it records the loan taken for the purpose of business. Scondly we will be able to record payment of interest also and treat that as an expense of the business which will result in lower liability on account of Income Tax.
answered Aug 20, 2015 by jbsclasses (3,971 points)
1.  Stock A/c            Dr. 45000

      Anil Bros.           Dr. 15600

      Gopal                  Dr. 22000

      Machinery A/c   Dr. 60000

         To Mohan                                    4000

         To Capital A/c                         138600    (This is the balancing figure.  First total all assets and then subtract liabilities from that total)

2.  Cash A/c              Dr.   5000

      Anil Bros.A/c       Dr.   8000

        To Sales A/c                                13000

3.  Sales Return  A/cDr.   5000

        To Cash A/c                                    5000

4.  Purchase A/c       Dr.   5400

        To Mohan                                        5400

5@. Purchase A/c       Dr.  17000

       To Cash A/c                                     9690

       To Discount Recd. A/c                      510

        To Raghu                                         6800

6.  Mohan A/c          Dr.      8400

         To Discount Recd. A/c                    250

         To Cash A/c                                    8150

7.  Cash A/c             Dr.    20000

        To Anil A/c                                     20000

8.  Drawings A/c     Dr.         800

        To Cash A/c                                       800  

(Since it is personal insurance of proprietor, it is not a business expense, hence debited to drawings account)

9.  Rent A/c              Dr.       2000

       To Cash A/c                                      2000

10. Cash A/c           Dr.          600

       To Commission Received A/c         600
plz sir help me to post it into ledgers and trail balance plz plz
Pl. see my video on Posting, Balancing and Trial Balance on youtube.  I am giving below link of that.  After seeing that if you have any doubts, please ask me:

Also see the following example:

You are requested to ask each question separately.