Start up costs

by Peggy
(Tennessee)

When you start a small business what do you debit and credit for purchases that you make to start the business??


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Hi Peggy!

When you start a small business, you invest personal funds to buy assets or make purchases of materials/products to start your small business.

I'm assuming you're a Sole Proprietor. I'm also assuming the you're using the term 'purchases' to mean materials that you will use to build a product to sell.


If you invested, say, $2,000 into the business, your journal entry would be:

Debit: Cash of $2,000

Credit: Owners Equity of $2,000



Then if you bought some materials to make your product, your journal entry would look like this:

Debit: Purchases of $1,500

Credit: Cash of $1,500



The textbook entry would be to debit Inventory (Asset Account) but in practice, most people post straight to the Purchases (aka Materials) account, then adjust Inventory at Month End or Year End.


I hope that helps!

If you need more help, don't hesitate to send me an email.

Kathy

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