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STEPS TO MAKE GENERAL JOURNAL ENTRIES

 Example:

January 1: Mr. Ali started business with cash investment of Rs.100,000.

Solution:
Step # 1: Analyzing the name of accounts:
There are two accounts used in this transaction.
(1) Cash (2) Capital.

Step # 2: Analyzing nature of accounts:
Nature of cash is Asset and nature of capital is Owner's equity.

Step # 3: Analyzing movement of accounts:
Cash (assets) is increasing in the business and Capital (owner's equity) is also increasing in the business.

Step # 4: Following rules of debit and credit:
Increase in asset recorded as debit and increase in owner's equity is recorded as credit.

General Entry:
Based on the above steps, general entry would be:
Cash 100,000 Debit
Capital 100,000 Credit.

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