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Difficulty: HardGeneral Journal (Journal Proper) and Opening Entries

On 1 May 2026, Emeka set up a sole proprietorship business by bringing in the following financial items into the enterprise: Premises valued at ₦2,500,000\text{₦}2,500,000, Delivery Van at ₦1,200,000\text{₦}1,200,000, Inventory at ₦450,000\text{₦}450,000, Trade Debtors at ₦380,000\text{₦}380,000, Trade Creditors at ₦520,000\text{₦}520,000, and a Bank Overdraft of ₦150,000\text{₦}150,000. He also introduced his private motor car valued at ₦600,000\text{₦}600,000 to be used permanently by the firm, alongside securing a long-term loan of ₦400,000\text{₦}400,000 from his brother specifically for business funding. What is the correct amount of opening Capital to be credited in Emeka's General Journal?

  1. ₦4,060,000\text{₦}4,060,000Answer
  2. B
    ₦4,660,000\text{₦}4,660,000
  3. C
    ₦3,460,000\text{₦}3,460,000
  4. D
    ₦5,130,000\text{₦}5,130,000

Answer

₦4,060,000\text{₦}4,060,000
The correct answer of ₦4,060,000\text{₦}4,060,000 is calculated by summing all total assets taken over by the business (₦5,130,000\text{₦}5,130,000, which includes the proprietor's private car introduced into the firm) and deducting total obligations (₦1,070,000\text{₦}1,070,000, comprising creditors, overdraft, and loan).

Step-by-Step Solution

1
Identify and sum all business assets introduced, including personal assets transferred to the firm
Total Assets = ₦2,500,000 (Premises)+₦1,200,000 (Delivery Van)+₦600,000 (Motor Car)+₦450,000 (Inventory)+��380,000 (Debtors)=₦5,130,000\text{₦}2,500,000\text{ (Premises)} + \text{₦}1,200,000\text{ (Delivery Van)} + \text{₦}600,000\text{ (Motor Car)} + \text{₦}450,000\text{ (Inventory)} + \text{��}380,000\text{ (Debtors)} = \text{₦}5,130,000
Under accounting principles, any asset brought in by the owner for business use forms part of total assets for opening entries.
2
Identify and sum all business liabilities taken over or incurred at commencement
Total Liabilities = ₦520,000 (Trade Creditors)+₦150,000 (Bank Overdraft)+₦400,000 (Loan from Brother)=₦1,070,000\text{₦}520,000\text{ (Trade Creditors)} + \text{₦}150,000\text{ (Bank Overdraft)} + \text{₦}400,000\text{ (Loan from Brother)} = \text{₦}1,070,000
External obligations and loans borrowed for business operations must be classified as liabilities.
3
Apply the Accounting Equation to find Opening Capital
Capital = Total Assets - Total Liabilities = ₦5,130,000−₦1,070,000=₦4,060,000\text{₦}5,130,000 - \text{₦}1,070,000 = \text{₦}4,060,000
The General Journal opening entry records Capital as the balancing equity figure (Assets minus Liabilities).

Key Concept

General Journal Opening Entry and Accounting Equation (Capital = Assets - Liabilities)
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Topics

General Journal (Journal Proper) and Opening Entries

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