Starting a new business involves many steps, and accounting is one of the most important. When a business begins, the owner usually invests money into it. This investment starts the business operations and must be recorded properly. The “Commenced business with cash journal entry” is the first accounting entry in business records. It shows that the owner started the business and added money to it. This entry helps build the company’s books from day one.The commenced business with cash journal entry records the money invested by the owner when the business starts. This entry affects two accounts—the Cash Account and the Capital Account. The cash comes into the business, so we debit the Cash Account. The Capital Account is credited because the owner is the giver of funds.

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What is Commenced Business with Cash?

When a business starts, the first thing it needs is capital. This capital can be cash, bank balance, or other assets. Usually, the owner brings in cash. That is why we record the commenced business with cash journal entry at the start.

This entry sets up the financial system of the company. It begins the tracking of cash and owner’s investment. From this point, every transaction that follows has a base to connect with. This entry helps in preparing the balance sheet, cash book, and other reports later.

This entry also plays a role in audit and record-keeping. It shows the origin of funds. During audits, this entry helps confirm that the owner’s funds were legally introduced and properly recorded.

The first entry has long-term value. As the business grows, this initial investment becomes part of the capital structure. It helps in understanding how much of the business is owned by the proprietor.

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Format and Rules of Commenced Business With Cash Journal Entry

The journal entry format for this transaction is simple. It follows the Golden Rules of Accounting and basic double-entry principles.

Here are the two accounts involved:

Cash Account: Asset account → Debit what comes in
Capital Account: Owner’s equity → Credit the giver

Journal Entry Format

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01-Apr-2025	Cash A/c Dr. To Capital A/c(Being business commenced with cash)		1,00,000	1,00,000

This entry shows that ₹1,00,000 has been brought into the business by the owner to start the operations.

Examples of Commenced Business With Cash Journal Entry

Now let’s understand with practical examples. These examples will help you understand how the amount and business type can vary, but the journal entry format remains the same.

Example 1:

Mr. Raj started a business with ₹50,000 in cash on 1st April 2025.

Journal Entry:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01-Apr-2025	Cash A/c Dr. To Capital A/c(Being business commenced with cash)		50,000	50,000

Example 2:

Ms. Anita started her boutique business with ₹2,00,000 in cash.

Journal Entry:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01-Apr-2025	Cash A/c Dr. To Capital A/c(Being business commenced with cash)		2,00,000	2,00,000

Example 3:

Ravi & Sons started a trading business with ₹5,00,000 in cash and ₹1,00,000 worth of stock.

Journal Entry:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01-Apr-2025	Cash A/c Dr.Stock A/c Dr. To Capital A/c(Being business commenced with cash and stock)		5,00,0001,00,000	6,00,000

Effects of the Entry on Financial Statements

The commenced business with cash journal entry affects two important areas of financial reporting—the balance sheet and the ledger accounts.

Effect on Balance Sheet

After recording the journal entry, the business will have:

Cash (Asset) = ₹Amount brought in
Capital (Owner’s Equity) = ₹Same amount
So, both sides of the balance sheet remain equal.

Effect on Ledger

Let’s see how the ledger looks after posting the journal entry:

Cash A/c (Dr.):

Date	Particulars	Amount (₹)
01-Apr-2025	To Capital A/c	1,00,000

Capital A/c (Cr.):

Date	Particulars	Amount (₹)
01-Apr-2025	By Cash A/c	1,00,000

This helps maintain the running balance of each account.

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Relevance to ACCA Syllabus

In the ACCA syllabus, the topic of commenced business with cash journal entry is covered in the Financial Accounting (FA) and Financial Reporting (FR) papers. This topic supports foundational learning for double-entry accounting, capital structure analysis, and equity reporting under IFRS standards, which are core to ACCA assessments.

Commenced Business with Cash Journal Entry ACCA Questions

Q1: What is the correct journal entry when a business is started with cash?
A) Capital A/c Dr. → To Cash A/c
B) Cash A/c Dr. → To Capital A/c
C) Sales A/c Dr. → To Capital A/c
D) Cash A/c Dr. → To Revenue A/c
Ans: B) Cash A/c Dr. → To Capital A/c

Q2: Which type of account is “Capital” in double-entry accounting?
A) Asset
B) Liability
C) Expense
D) Owner’s Equity
Ans: D) Owner’s Equity

Q3: What does the commencement journal entry affect in the balance sheet?
A) Only Liabilities
B) Only Assets
C) Assets and Owner’s Equity
D) Income and Expense
Ans: C) Assets and Owner’s Equity

Q4: Under IFRS, where is capital shown in financial statements?
A) Statement of Profit or Loss
B) Statement of Cash Flows
C) Statement of Changes in Equity
D) Notes to Accounts
Ans: C) Statement of Changes in Equity

Q5: Which one follows the rule “Credit the Giver” in the commencement entry?
A) Sales A/c
B) Capital A/c
C) Bank A/c
D) Cash A/c
Ans: B) Capital A/c

Relevance to US CMA Syllabus

The US CMA syllabus covers external financial reporting decisions and financial statement preparation. Recording the commenced business with cash journal entry connects directly with asset recognition, owner’s equity setup, and the application of basic accounting principles—key components in Part 1 of the CMA exam.

Commenced Business with Cash Journal Entry US CMA Questions

Q1: When a business starts with $50,000 cash, how is it reflected in the books?
A) Expense and Revenue
B) Asset and Equity
C) Revenue and Liability
D) Equity and Liability
Ans: B) Asset and Equity

Q2: In the commenced business journal entry, the cash is:
A) Debited because it is an income
B) Debited because it is an asset coming in
C) Credited because it’s going out
D) Not recorded
Ans: B) Debited because it is an asset coming in

Q3: Which financial ratio would be impacted at business start-up?
A) Quick Ratio
B) Return on Equity
C) Debt-to-Equity Ratio
D) Earnings Per Share
Ans: C) Debt-to-Equity Ratio

Q4: In financial accounting, which of the following is not part of capital at inception?
A) Cash from owners
B) Fixed assets contributed by owners
C) Retained earnings
D) Goods introduced by the owner
Ans: C) Retained earnings

Relevance to US CPA Syllabus

In the US CPA exam, especially in the FAR (Financial Accounting and Reporting) section, candidates must understand how to record initial financial transactions, especially under GAAP standards. A commenced business with cash journal entry is essential for proper set-up of equity and cash accounts at the beginning of a reporting period.

Commenced Business with Cash Journal Entry US CPA Questions

Q1: Under GAAP, where is the capital contributed by an owner recorded?
A) Income Statement
B) Retained Earnings
C) Common Equity section of Balance Sheet
D) Notes to Financials
Ans: C) Common Equity section of Balance Sheet

Q2: The journal entry for commencing business with cash includes which accounts?
A) Income and Expense
B) Asset and Owner’s Equity
C) Liability and Expense
D) Asset and Revenue
Ans: B) Asset and Owner’s Equity

Q3: If $100,000 is introduced as capital, how is it recorded?
A) Cash A/c Dr. $100,000; To Capital A/c Cr. $100,000
B) Capital A/c Dr. $100,000; To Bank A/c Cr. $100,000
C) Revenue A/c Dr. $100,000; To Cash A/c Cr. $100,000
D) Cash A/c Dr. $100,000; To Sales A/c Cr. $100,000
Ans: A) Cash A/c Dr. $100,000; To Capital A/c Cr. $100,000

Q4: In a sole proprietorship, the capital account represents:
A) Revenues of the business
B) Investment made by creditors
C) Contribution by owner
D) Deferred revenue
Ans: C) Contribution by owner

Relevance to CFA Syllabus

The CFA Level 1 curriculum in Financial Reporting and Analysis emphasizes understanding how transactions affect the accounting equation. The topic “commenced business with cash journal entry” connects with initial equity funding, capital structure, and balance sheet setup, all critical for interpreting financial statements and ratios.

Commenced Business with Cash Journal Entry CFA Questions

Q1: What is the effect on the accounting equation when business starts with cash?
A) Increases assets and liabilities
B) Increases assets and equity
C) Increases income and expense
D) No change in the equation
Ans: B) Increases assets and equity

Q2: A business commenced with $80,000 cash. Which accounts are affected?
A) Cash and Revenue
B) Equity and Liabilities
C) Cash and Capital
D) Expense and Bank
Ans: C) Cash and Capital

Q3: Which of the following is true for owner’s capital in accounting?
A) It is recorded as income
B) It is an asset
C) It increases liabilities
D) It is a form of equity
Ans: D) It is a form of equity

Q4: Which financial statement will show the effect of capital introduced?
A) Income Statement
B) Balance Sheet
C) Cash Flow (Operating)
D) Trial Balance
Ans: B) Balance Sheet

Q5: If a business starts with both cash and inventory, what is the correct entry?
A) Cash A/c Dr., To Sales A/c
B) Inventory A/c Dr., To Income A/c
C) Cash A/c Dr., Inventory A/c Dr., To Capital A/c
D) Capital A/c Dr., To Bank A/c
Ans: C) Cash A/c Dr., Inventory A/c Dr., To Capital A/c