Multiple Choice
In the debit and credit framework, expenses follow the same debit and credit rules as which type of account?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In the journal entry to issue shares for cash, which normal balance does the Common Stock account have and how is it recorded?
A
Common Stock has a normal debit balance and is recorded with a credit.
B
Common Stock has a normal credit balance and is recorded with a credit.
C
Common Stock has a normal debit balance and is recorded with a debit.
D
Common Stock has a normal credit balance and is recorded with a debit.
Verified step by step guidance1
Understand that the Common Stock account represents the ownership equity in a company and is part of shareholders' equity on the balance sheet.
Recall that equity accounts, including Common Stock, typically have a normal credit balance because they represent claims against the company's assets.
When shares are issued for cash, the company receives cash (an asset), which increases with a debit entry to the Cash account.
Simultaneously, the Common Stock account increases to reflect the new shares issued, which is recorded as a credit entry because it is an equity account with a normal credit balance.
Therefore, the journal entry to issue shares for cash involves debiting Cash and crediting Common Stock, consistent with their normal balances.
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