Journal Entry for Started Business with Cash
Cash is one of the most important assets that we need to start a business. The company needs cash for suppliers, employee salaries, purchase material and equipment, and so on.
The private company starts with the investment of owners who invests their capital such as fixed assets, cash, and so on. It starts with a person who fully owns the company. He or she is the only one who invests cash or other assets into the company. The private company can be owned by a small group of people without issue sharing with the public.
Corporation is the entity that separates the owner and the company. The corporation will take full responsibility for the liability on the balance sheet. The shareholders do not take any responsibility for the debt, they will lose only the capital invested. It is a separate legal entity that can borrow cash, sign contract,s and hire the employee.
Both types of companies need cash to operate. Part of the initial investment may contain cash and other assets such as fixed assets.
Journal Entry for Started Business with Cash
At the beginning of business, the company needs cash to operate and pay for various parties. When the investors put their cash into the company, we need to record cash and share capital. The capital may be different depending on the type of corporation.
Before the operation, the company will start with zero balance on both income statement and balance sheet. The initial investment will increase assets and equity. The assets may contain cash and others. The equity side will impact only the capital from investors.
The journal entry is debiting cash and credit share capital.
| Account | Debit | Credit |
| Cash | XXXX | |
| Share Capital | XXXX |
This transaction will increase cash amount on balance sheet. The capital represents the amount invested by owner/investors, it will show under the equity section.
If the invest some other fixed assets into the company, we need to calculate the fair value of asset and record it into balance sheet as well.
The double entry is debiting fixed assets and credit share capital.
| Account | Debit | Credit |
| Fixed Assets | XXXX | |
| Share Capital | XXXX |
Fixed assets will appear on the balance sheet while share capital showed under the equity section.
Journal Entry for Started Business with Cash
Mr. A and Mr. B work together to start a company called XYZ. Mr. A invests $ 1 million of cash into the company. Mr. B invests $ 800,000 of cash and a build worth $ 200,000 base on the market value. Both of them hold equal ownership in XYZ. Please prepare a journal entry of capital investment by both of them.
It is the first transaction recorded into the company financial statement. It follows the accounting equation in which assets equal liabilities plus equity. So when we increase assets, we must increase liability or equity.
When Mr. A invests cash $ 1 million, we need to record cash and share capital. The journal entry is debiting cash $ 1 million and credit share capital $ 1 million.
| Account | Debit | Credit |
| Cash | 1,000,000 | |
| Share Capital | 1,000,000 |
The cash balance will increase by $ 1 million and equity increase by $ 1 million. It follows the accounting equation and the balance sheet is still balance.
When Mr. B invest cash $ 800,000 and building $ 200,000, we need to record cash, fixed asset, and share capital.
The journal entry is debiting cash $ 800,000, Building $ 200,000 and credit share capital $ 1,000,000.
| Account | Debit | Credit |
| Cash | 800,000 | |
| Fixed Assets | 200,000 | |
| Share Capital | 1,000,000 |
The cash balance increase by $ 800,000 and fixed assets increase by $ 200,000. Equity increase by $ 1 million, and all items are present on the balance sheet.