What can affect capital? And do you know how to record it in a T account?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at three things that can affect a capital T account.
First of all, let’s quickly recap the basics of a T account.
A vertical line is drawn in the middle of the page so that it is divided into two sections.
Then a line is drawn across the top and the title for the account is written on the top
line in the centre like so.
The left hand side of the T account is known as the debit side or debit.
And the right hand side of the T account is known as the credit side or credit.
You can also title “Date” in these columns “Details” in these columns and title “your
currency” in these columns.
If you want to learn more about how to prepare or open a T account for capital then click
on the link above to watch the video on How to open a T account. Also if you do not know
what capital is then click this link.
Let's now have a look at three things that may affect a capital T account.
Jane, a sole trader, started a business investing £6,000 in the business bank account.
This transaction would have an effect on the capital account and because Jane has invested
money in the business bank this means capital has increased.
To record this we would enter the details on the credit side of the capital T account.
We will presume the transaction took place on the 6th February 2016 which can be shown
as 6/2/16. Then we will note it as bank in the details column because that is the name
of the other account that has been affected during the transaction. And finally 6,000
is entered in the £ column.
During the next month of trading, Jane withdrew £500 from the business bank account for personal
use.
The business entity concept states that the transactions related to a business should
be treated separately to that of its owners and vice versa.
Therefore this transaction would have an effect on the capital account because Jane, the owner,
has withdrawn money from the business bank for her own use and this causes capital to
decrease.
To record this we would enter the details on the debit side of the capital T account.
We will presume the transaction took place on the 15th March 2016 which can be shown
as 15/3/16. Then we will note it as Jane bank in the details column but normally it is the
initial of the persons first name and then their full surname. And finally 500 is entered
in the £ column.
Then at the end of the month, Jane’s business had made £200 in profit.
This would have an effect on the capital account because the profits made during the trading
period belong to the owners of the business, i.e. Jane, and therefore will cause capital
to increase.
To record this we would enter the details on the credit side of the capital T account.
We will presume the transaction took place on the 31st March 2016, which can be shown
as 31/3/16. Then we will note it as profit in the details column because that is the
name of the other account that has been affected during the transaction. And finally 200 is
entered in the £ column.
So that was three things that can affect a T account of capital. If you enjoyed it, press
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