Commencement of business with debtors:
Illustration 1.
Chandrasekhar commenced business with debtors of Rs.3,000. Pass the journal entry.
Note: This transaction means that the proprietor has brought his private debtors (i.e., the amounts due to him from debtors on private account) into the business. (That is, the private debtors of the proprietor are treated as the debtors of the business.)
When the proprietor brings his private debtors into the business, the two accounts involved in the transaction are (a) debtors account and (b) capital account.
Debtors account is a personal account. When the private debtors of the proprietor are brought into the business (i.e., when the private debtors of the proprietor are treated as the debtors of the business), the business discharges or frees the debtors from their debts to the proprietor. This, in effect, means that the debtors get a benefit (i.e., discharge of their debt to the proprietor) from the business. As the debtors are the receivers of benefit from the business, the debtors account has to be debited.
Capital account is a personal account. When the proprietor brings his private debtors into the business (i.e., when the private debtors of the proprietor are treated as the debtors of the business), the proprietor gives up his claim against the private debtors in favour of the business. This, in effect, means that the proprietor has given a benefit to the business. As the proprietor is the giver of benefit to the business, capital account has to be credited.
The journal entry for this transaction will be:
Illustration 1.
Chandrasekhar commenced business with debtors of Rs.3,000. Pass the journal entry.
Note: This transaction means that the proprietor has brought his private debtors (i.e., the amounts due to him from debtors on private account) into the business. (That is, the private debtors of the proprietor are treated as the debtors of the business.)
When the proprietor brings his private debtors into the business, the two accounts involved in the transaction are (a) debtors account and (b) capital account.
Debtors account is a personal account. When the private debtors of the proprietor are brought into the business (i.e., when the private debtors of the proprietor are treated as the debtors of the business), the business discharges or frees the debtors from their debts to the proprietor. This, in effect, means that the debtors get a benefit (i.e., discharge of their debt to the proprietor) from the business. As the debtors are the receivers of benefit from the business, the debtors account has to be debited.
Capital account is a personal account. When the proprietor brings his private debtors into the business (i.e., when the private debtors of the proprietor are treated as the debtors of the business), the proprietor gives up his claim against the private debtors in favour of the business. This, in effect, means that the proprietor has given a benefit to the business. As the proprietor is the giver of benefit to the business, capital account has to be credited.
The journal entry for this transaction will be:
Journal Entry
Date. Particulars. L.F. Dr. CR.
Rs. Rs.
Debtors Account. Dr. 3,000
To Capital Account. 3,000
(Being the debtors
brought into the
business by the
business by the
proprietor)
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