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To begin with, three types of businesses can be commenced, i.e. sole proprietorship, partnership, and joint-stock company. As we all know, to start any business, a certain sum of money has to be invested by the owner that is known as the capital of the business in terms of accounting.
Journal entry for started business with cash
The Cash A/c is debited as it is an asset for the business, and the Capital A/c is credited as it is a liability for the business according to the business entity concept.
1. According to the golden rules of accounting:
| Cash a/c | Debit | Debit what comes in |
| To Capital a/c | Credit | Credit the giver |
(being business commenced with cash)
2. According to the modern rules of accounting:
| Cash a/c | Debit | Debit the increase in asset |
| To Capital a/c | Credit | Credit the increase in capital |
(being business commenced with cash)
Example
Mr A commenced business with cash (capital) amounting to 1,00,000. The journal entry in the books of Mr A is as follows.
| Cash a/c | Debit | 1,00,000 |
| To Capital a/c | Credit | 1,00,000 |
(being business commenced with cash)