Kalu commenced business with the following assets and liabilities to be recorded in his op… — JAMB UTME

Kalu commenced business with the following assets and liabilities to be recorded in his opening journal entry: Office Equipment $\text{₦}600,000$ , Furniture $\text{₦}250,000$ , Trade Debtors $\text{₦}150,000$ , Cash in Hand $\text{₦}100,000$ , and Trade Creditors $\text{₦}200,000$ . What is the value of Capital in naira to be credited in the opening entry?

Answer: 900000 ₦

Answer

The initial capital amount to be credited in the opening journal entry is

\text{₦}900,000

The correct answer of

\text{₦}900,000

is determined by applying the accounting equation

\text{Capital} = \text{Assets} - \text{Liabilities}

. Summing the assets gives

\text{₦}1,100,000

(Office Equipment

\text{₦}600,000

+ Furniture

\text{₦}250,000

+ Debtors

\text{₦}150,000

+ Cash

\text{₦}100,000

). Subtracting the liability of Trade Creditors (

\text{₦}200,000

) yields the opening capital balance of

\text{₦}900,000

Step-by-Step Solution

Sum all asset balances given in the scenario

Total Assets =

\text{₦}600,000 + \text{₦}250,000 + \text{₦}150,000 + \text{₦}100,000 = \text{₦}1,100,000

Opening entries require debiting all individual asset accounts to set up the starting books.

Identify all liability balances given

Total Liabilities =

\text{₦}200,000

(Trade Creditors)

Liabilities represent claims against the business assets and are credited in the opening journal entry.

Deduct total liabilities from total assets to determine owner's capital

Capital =

\text{₦}1,100,000 - \text{₦}200,000 = \text{₦}900,000

According to the fundamental accounting equation, Assets = Capital + Liabilities, so Capital = Assets - Liabilities.

Key Concept

Calculation of Opening Capital in the General Journal using the Accounting Equation

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