How do I enter the following investment as a compound entry in a general journal? I also don't understand how cash is different from capital. Help!!!
ASSETS
Cash...............20,000.00
Moving Van.........40,000.00
= 60,000.00
LIABILITIES & OWNER'S EQUITY
Bank Loan..........15,000.00
Capital, J.Herta...45,000.00
= 60,000.00
To enter the investment as a compound entry in a general journal, you need to follow these steps:
1. Identify the account titles and amounts involved:
- Cash = $20,000.00
- Moving Van = $40,000.00
2. Determine the specific accounts to be debited and credited based on the nature of the transaction. In this case, since both cash and the moving van are assets, they will be debited.
3. Write the compound entry in the general journal using the following format:
Date | Account Titles and Explanation | Debit | Credit
------|----------------------------------------------|---------|---------
[Date]| Cash | $20,000 |
| Moving Van | $40,000 |
| | |
| | |
4. Calculate the total debits and credits. In this case, the total debits ($20,000 + $40,000) and the total credits (none) should both amount to $60,000, as shown in your example.
Regarding your second question, the difference between cash and capital is as follows:
- Cash: Cash refers to the physical currency, coins, and balances held in bank accounts that a business or individual has available for immediate use in transactions. It represents the liquidity of an entity and is considered an asset.
- Capital: Capital represents the owner's equity in a business. It refers to the owner's investment or the net worth of the business after accounting for liabilities. In other words, capital is the difference between a business's assets and liabilities and represents the equity the owner has in the business.
In the example you provided, cash is listed as an asset because it represents the amount of money, in this case, $20,000, available to the business. Capital, on the other hand, is listed as an owner's equity because it represents the owner's investment in the business, which in this case is $45,000.