Accounting recording

Opinion 1:

Cash A/c Dr
To Unsecured Loan
( Loan paid by mr X to Business )
in
Unsecured Loan will be under Current Liability , Liability side Balance sheet .

we consider as loan because , amount contributed to Business by Mr X is payable to him in future . It's Liability to pay .

If Mr. X is running a proprietary business, he cannot show additional cash brought into the business as a loan as a person cannot give loan to himself.

This is a case of additional capital.introduced.

Dr. Cash
Cr. Mr. X capital account.


even capital is a liability and the capital amount is payable to Mr. X in future.

Mr Doshi sir
Where it is written, that he can not show additional cash brought in to business as a loan .? Business is separate entity , So he and business is separate entity .

Both transactions are correct based on the substance of the transaction. When debt, it is liability, when capital it is credited. As per the financing aspect, working capital becomes a loan and if they follow the business entity concept, owners transaction can be represented like

Cash a/c

To X. Capital a/c

and 

Working capital a/c

To Cash a/c

So, if it is treated as unsecured loan then initially recognition is not there due to the dual aspect problem, but, during repayment

X capital a/c

To Payables a/c

and Payables To bank .

instead we can avoid above number of transactions by recognising

Cash a/c

To X unsecured loan. 

Since working capital classifies as loan. 

 

 

 

Yes , you are correct Mr Gomes , it is to be treated as Unsecured Loan , since Business and Mr X are separate entity as per Business entity concept .
As per business entity concept , capital brought in the business , we show as Liability side of the balance sheet , because business has to ultimately repay to proprietor so cash brought in the business by Mr X every now and then use for working capital should be treated as loan .

The accounting would be correct but explaining the statutory authorities would be difficult. Instead Capital is also a liability towards the owners. 

Sir, this is hard to judge because intentions of the owner is unknown. Day to day capital is taken to expenses which consists of both capitals. To me both are correct because the owner must specify if he is investing  or planning to draw it from profits. 

Lets leave it to the assessee and the tax practitioner.

It is up to Mr Sanjay Kumar Halder , queriest , to treat that as capital or Loan.investing or withdrawing from Business .

Great because this question must have been put into tax planning section.

Implicit rate of borrowing is zero.

personal cost of finance of owners is unknown and is not related to business.

So, no tax consequences here for both capital or lending. 

Either capital or loan, both are recovered from profits.