Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Business Formation Example

Financial Accounting

2. Transaction Analysis

Journal Entries: Business Formation Example

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Multiple Choice

Which of the following is the correct journal entry when a business receives $10,000 in cash from the owner as an investment?

Debit Expense $10,000; Credit Cash $10,000

Debit Cash $10,000; Credit Revenue $10,000

Debit Cash $10,000; Credit Owner's Capital $10,000

Debit Owner's Capital $10,000; Credit Cash $10,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The business is receiving $10,000 in cash from the owner as an investment. This means the owner is contributing capital to the business, increasing the owner's equity and the business's cash balance.

Step 2: Identify the accounts involved. The two accounts affected are 'Cash' (an asset account) and 'Owner's Capital' (an equity account). Cash increases because the business receives money, and Owner's Capital increases because the owner's equity in the business grows.

Step 3: Determine the type of account and the impact. Cash is an asset account, and an increase in assets is recorded as a debit. Owner's Capital is an equity account, and an increase in equity is recorded as a credit.

Step 4: Write the journal entry. The correct journal entry is: Debit Cash $10,000 (to record the increase in assets) and Credit Owner's Capital $10,000 (to record the increase in equity).

Step 5: Verify the journal entry. Ensure that the debit and credit amounts are equal ($10,000 each) and that the accounts accurately reflect the transaction. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.