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

Sanyu Sony started a new business and, during December, invested $10,000 cash and equipment valued at $5,000 into the business. What is the correct journal entry to record this transaction?

Debit Owner's Capital $10,000; Credit Cash $10,000; Credit Equipment $5,000

Debit Cash $10,000; Debit Equipment $5,000; Credit Owner's Capital $15,000

Debit Cash $5,000; Debit Equipment $10,000; Credit Owner's Capital $15,000

Debit Owner's Capital $15,000; Credit Cash $10,000; Credit Equipment $5,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. Sanyu Sony is investing cash and equipment into the business. This means the business is receiving assets (cash and equipment), and the owner's equity (Owner's Capital) is increasing as a result of the owner's contribution.

Step 2: Identify the accounts involved. The accounts affected are: (1) Cash (an asset account), (2) Equipment (an asset account), and (3) Owner's Capital (an equity account).

Step 3: Determine the type of each account and the effect of the transaction. Cash and Equipment are assets, and they will increase, so they are debited. Owner's Capital is an equity account, and it will increase, so it is credited.

Step 4: Apply the accounting equation: Assets = Liabilities + Owner's Equity. In this case, the increase in assets (Cash and Equipment) is balanced by the increase in Owner's Equity (Owner's Capital).

Step 5: Record the journal entry. Debit Cash for $10,000, Debit Equipment for $5,000, and Credit Owner's Capital for the total contribution of $15,000. This ensures the transaction is properly recorded in accordance with the double-entry accounting system.