Capital is the funds introduced into the business operations. The introduction of capital is also referred to as Equity in the accounting world. Please follow these steps for recording capital introduction.
1. Create Capital Account
The first step is to create a capital account. You can create Capital accounts of promoters from Accounts > Chart of Accounts section.
The capital can be introduced by a Proprietor in case of a Proprietorship, Partners in case of Partnership firm or Limited Liability Partnership (LLP), or by Shareholders in case of a Private Limited Company. It can be more than one account.
Please remember to keep the account group as Capital Accounts.
2. Record Journal Entry
The accounting entry for recording capital needs to be passed from Accounting > Journal Voucher section
The capital can be introduced via bank transfer by the promoters, or it can be introduced in cash. You will have to debit and credit appropriate accounting heads. The Cash / Bank Account needs to be Debited and Capital Account needs to be Credited.
Accounting Entry for both scenarios will be as below:
Depending on the nature of your entity i.e., Proprietorship, Partnership Firm, LLP or a Private Limited company, you will have to include names of people / entities introducing capital on the credit side.