On 1st January, Chief Chukwuma commenced business by incorporating the following assets an… — JAMB UTME

On 1st January, Chief Chukwuma commenced business by incorporating the following assets and liabilities into his accounting records via the General Journal: Premises worth $\text{₦}1,800,000$ , Motor Vehicles valued at $\text{₦}750,000$ , Trading Stock of $\text{₦}320,000$ , Trade Debtors of $\text{₦}140,000$ , Prepaid Rent of $\text{₦}30,000$ , Trade Creditors of $\text{₦}210,000$ , Bank Overdraft of $\text{₦}85,000$ , Accrued Electricity Bill of $\text{₦}15,000$ , and a 10% Bank Loan of $\text{₦}400,000$ . What is the exact amount of Capital to be credited in the opening journal entry?

Answer: 2330000 ₦

Answer

The amount of Capital to be credited in the opening journal entry is

\text{₦}2,330,000

The correct calculation evaluates total assets as

\text{₦}3,040,000

(including Prepaid Rent as an asset) and total liabilities as

\text{₦}710,000

(including Bank Overdraft and Accrued Electricity as liabilities). Subtracting total liabilities from total assets yields a capital balance of

\text{₦}2,330,000

, which balances the debit and credit sides of the opening journal entry.

Step-by-Step Solution

Classify and total all assets to be debited in the opening journal entry

Premises (

\text{₦}1,800,000

) + Motor Vehicles (

\text{₦}750,000

) + Stock (

\text{₦}320,000

) + Debtors (

\text{₦}140,000

) + Prepaid Rent (

\text{₦}30,000

) =

\text{₦}3,040,000

Assets represent economic resources owned or prepaid expenses brought forward, which carry debit balances.

Classify and total all liabilities to be credited in the opening journal entry

Trade Creditors (

\text{₦}210,000

) + Bank Overdraft (

\text{₦}85,000

) + Accrued Electricity (

\text{₦}15,000

) + 10% Bank Loan (

\text{₦}400,000

) =

\text{₦}710,000

Liabilities represent obligations owed to outside parties including bank overdrafts and accrued expenses, which carry credit balances.

Apply the basic accounting equation to determine opening capital

Capital = Total Assets - Total Liabilities =

\text{₦}3,040,000 - \text{₦}710,000 = \text{₦}2,330,000

In an opening journal entry, the excess of debited assets over credited liabilities represents the owner's capital account balance.

Key Concept

Opening Journal Entry and Capital Determination

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