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Principal deposit and journal entry in Japan

What is a principal deposit?


You have decided to start a bakery (sole proprietorship). You are now keeping accounting books, but there is a word that is difficult to understand: “original deposit=principal deposit = Motoire Kin”.

If you don’t understand this term correctly, you will not be able to make a balance sheet.

Without a balance sheet, you cannot file a blue tax return (Aoiro Shinkoku).

The principal deposit is the equivalent of capital in the case of a company.

It is the money you set aside to start your bakery. But you will say, “I didn’t make a clear distinction between the money specifically for the bakery and the money I used for fun.

But in order to create a balance sheet, you need to clearly identify how much money you have set aside to start the business.

It is okay if you have already started your business. You just need to make a journal entry with a past date.

Specific examples of frequent journal entries

You have already started your business (on January 4, 2023) and did not know about the principal deposit.

Your journal entries to date are as follows


January 5, 2023   Rent 10 yen / Cash 10 yen
2023年1月5日 家賃 10円 / 現金 10円

(You use part of your home for your business. The rent for your home is 50 yen. The area of your home that you use for your business is one-fifth of the total area of your home, so you recorded 10 yen as an expense.)

January 6, 2023   Miscellaneous expenses 11 yen / Cash 11 yen

2023年1月6日 雑費 11円 / 現金 11円

(You went to your client. But you arrived earlier than planned. So you went to a coffee shop near the client’s place and drank a cup of coffee for 11 yen.)

January 7, 2023   Meeting expense 12 yen / Cash 12 yen
2023年1月7日 会議費 12円 / 現金 12円
(You had a meeting with your client at a coffee shop and drank coffee for 12 yen.)

January 8, 2023 Entertainment expense 13 yen / cash 13 yen
2023年1月8日 接待交際費 13円 / 現金 13円
(You had a meal at a restaurant with your client and ate sushi for 13 yen.)

January 9, 2023: Food expenses: 13 yen / Cash: 13 yen
2023年1月9日 食費 13円 / 現金 13円
(You had lunch at a local ramen shop. Your lunch expense is not an deductible expense. So this journal entry is unnecessary.)

January 10, 2023   Travel expenses 14 yen / proprietors funds 14 yen
2023年1月10日 旅費交通費 14円 / 事業主借 14円
(You went to Hokkaido on business. You paid 14 yen for transportation and hotel expenses from your personal bank account. (Since you, as a sole proprietor, borrowed 14 yen from you outside of your business, you use the term “proprietors funds事業主借”)

January 11, 2023: proprietors draw: 15 yen / Savings account: 15 yen
2023年1月11日 事業主貸 15円 / 普通預金 15円
(You withdrew 15 yen from the bank account you use for your business (to go out drinking). (You, as a sole proprietor, lent ¥15 to you, as a private individual, so you use the “proprietors draw事業主貸”)

January 12, 2023 Taxes and dues 16 yen / Cash 16 yen
2023年1月12日 租税公課 16円 / 現金 16円
(You bought revenue stamps for 16 yen to put on the contract.)

January 13, 2023 Travel expenses 17 yen / Cash 17 yen
2023年1月13日 旅費交通費 17円 / 現金 17円
(You took a bus from Kachidoki to Ginza for 17 yen. You do not need a receipt. Just leave a note.)

January 14, 2023 Packing fare 18 yen / Cash 18 yen
2023年1月14日 荷造り運賃 18円 / 現金 18円
(You mailed a loaf of goods)

January 15, 2023 Consumables 19 yen / Cash 19 yen
2023年1月15日 消耗品 19円 / 現金 19円
(You purchased toilet paper for your work)

January 16, 2023 Communication expense 20 yen / Savings account 20 yen
2023年1月16日 通信費 20円 / 普通預金 20円
(Cell phone bill was debited from the bank account used for work)

If you create a balance sheet based on the journal entries above, net assets will be negative. This is because there are no original funds, but only expenses. Therefore, you will use the original deposit(元入金=motoire kin).

January 4, 2023           Cash 300 yen / Original Deposit 300 yen
2023年1月4日 現金 300円 / 元入金 300円

(You, as the business owner, are assuming that you started the business with an investment of 300 yen from you outside of business. The original deposit is the amount of the investment that you, as the business owner, received from you outside the business when you started the business. You’ll need to add a journal entry for the principal deposit in the backdate to get a proper balance sheet.)