Capital Account

What is Capital Account?

Capital Account is a chronological record of all transactions that affect owner’s net worth. This is an account where transactions causing either increase or decrease of owner’s equity or net worth are recorded.

Capital Account is applicable when we want to show the owner’s claim he or she has in the business amongst other claimants such as external lenders such as trade creditors and loan lenders. It is the account were internal source of financing of the assets of the business is disclosed.

NB: All types of businesses have a capital account. Examples of such accounts are;

Sole proprietor’s capital account for a single business

Partnership capital account for partners

Company capital account for privately and public owned companies

Accumulated fund for non-profit making organizations such as societies and clubs

Example 1

1st July 2020, Lone Ranger started a refilling station business whereby he intended to deal with petroleum products. He used his retirement benefits of cash amounting to $230,000

Required

Show the accounting entries in both journal and ledger accounts

Solution

Example 2

1st November 2020, Missed and Call started a partnership business by the name MC partnership to deal with stationery supplies to learning institutions. Each partner contributed equal amount of money by check of $12,000

Required

Show the accounting entries in both journal and ledger accounts

Solution

Example 3

10th/02/2018. Morris, Moses and Mike started a private limited company by the name Triple M co ltd. The authorized share capital was 100,000 ordinary shares at issuing price of $10 each. Each member of the company contributed capital by buying shares as follows;

Morris bought 50,000 ordinary shares hence he contributed $500,000 by check

Moses bought 30,000 ordinary shares hence he contributed $300,000 by check

Mike bought 20,000 ordinary shares hence he contributed $200,000 by cash

Required

Show both journal and ledger account entries as at 10th/02/2018

Solution