when a owner of a business spends his own money for his busines , that is , petty expenses , not capital expenses, and later gets reimbursed from his business , hw should i record the entries ?
for example he bought printer ink for 2000 and later took money from his business ....
maintain a current capital A/c for recording such transactions
printer/office exp. a/c dr . 2000
to capital a/c 2000
capital a/c 2000
to bank a/c 2000
from the above problem
owner is bringing capital to the business
and therefore it is capital introduced
asset a/c -----dr
TO capital a/c
and then he is drawing the money from business
capital a/c ----dr
To cash/bank a/c
printer(Asset). a/c dr . 2000
to capital a/c 2000
capital a/c 2000
to bank/cash a/c 2000
why we are using capital account here??
Good question Vardan. Actually we should not use capital a/c. Instead create a ledger in individual's name & treat it as advance received & settle by cash repayment.
Because owner is not bringing the cash with the intent to increase his capital, he is just lending money to business temporarily.
nazia , can u then pls give the related entries for such a transaction. pls specify what type of account head it will be (like asset expense etc ). pls help since am new to this field.
I also have one more question
a business owner has two shops A and B. He buys some items (for eg non inventory like stationaries in bulk) for 2000 and transfers items worth 750 to be used in shop B. What are the entries in shop A. Now shop B owes Shop A 750.
in shop A records
Dr stationaries expense 2000
Cr cash 2000
and regarding the transfer of items
Dr Receivables from B 750
Cr ????????
should it be treated as a sale at cost price
Create a ledger in the owner's name under current liabilities & post the following entries:
1. for purchase: Expense a/c dr To X (owner) a/c
2. for payment: X (owner) a/c dr To Cash/Bank a/c
Yes it should be treated as sales at cost price. Explain the transaction clearly, so that i can give u entries, like which shop purchases for how much, etc., & whether payment has been made or its just a transfer?
Shop A Purchases stationaries worth 2000 for cash and transfers stationaries worth 750 to shop B . Now shop B owes shop A 750. Pls help me with entries in shop A's books. Payment has not been made by shop B yet.
Ravi,
To use Capital A/c or to create a separate account for the type of transactions you've said is entirely your judgement. If there are many transactions like this it would be better to create a separate account for it.
And about the shop transfers you've said...entries need to be passed only if you treat the shops as separate accounting entities.
just pass this entry for transfer....
Printing & Stationery A/c Dr. 750 ( if this is the account you are operating for stationery, if other, as your books )
To Shop A A/c 750
In the books of Shop A:
For purchase of stationery items:
Printing & stationery a/c dr 2000
To cash a/c dr 2000
For transfer to Shop B:
Shop B a/c dr 750
To Printing & stationery a/c 750
On receiving payment from shop B:
Cash a/c dr 750
To Shop B a/c 750
In the books of shop B:
For transfer of stationery items:
Printing & stationery a/c dr 750
To Shop A a/c 750
While making payment:
Shop A a/c dr 750
To Cash a/c 750
thank u very much nazia jithin and everyone. will come back with more question:)
CAclubindia
