This
account summarises the amount of funds which have been invested in the business
by the owner(s). This section
deals only with Sole Traders. For the structure of capital accounts for Partnerships,
Limited Companies and Clubs and Socities you should refer to these sections separately. 'Capital'
can have several different meanings. Here we refer to it as meaning the amount
of resources proveided to the business by the owner, either in the form of cash
or some other asset e.g. motor vehicle. Capital
is invested when the business first starts trading but extra amounts can be invested
at any time, the double entry being: DEBIT
Cash/Bank Account CREDIT
Capital Account Net Profit
is the reward to the owner of a business for having taken risk. This profit is
therefore added to Capital in the Capital account, the double entry being: DEBIT
Profit and Loss Account CREDIT
Capital Account From Capital
is deducted any Drawings taken by the owner (in effect their wages or share of
the profit made which they want to spend on themselves - they probably have a
house, partner and children to feed too!). The double entry is: DEBIT
Capital Account CREDIT
Drawings Account This transaction
may seem strange . Please refer to the Drawings Account example to make matters
more clear. In short however,
whenever Drawings are taken during the year by the owner they are debited (as
an expense) to the Drawings Account and Bank/Cash is credited (reduction of an
asset). At the end of the year all the debits in the Drawings Account will add
up to one big debit balance. It is this which is transferred to the Capital Account
by the above double entry.
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