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

When recording the initial investment of cash and equipment by an owner in a newly formed business, which of the following journal entries is correct?

Debit Owner's Capital; Credit Cash and Equipment

Debit Owner's Capital; Credit Revenue

Debit Equipment; Credit Cash and Owner's Capital

Debit Cash and Equipment; Credit Owner's Capital

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Verified step by step guidance

Understand the nature of the transaction: The owner is contributing cash and equipment to the business, which increases the business's assets (cash and equipment) and the owner's equity (Owner's Capital).

Identify the accounts involved: The accounts affected are 'Cash,' 'Equipment,' and 'Owner's Capital.' Cash and Equipment are asset accounts, while Owner's Capital is an equity account.

Determine the impact on each account: Cash and Equipment will increase, so they should be debited (as debits increase asset accounts). Owner's Capital will increase, so it should be credited (as credits increase equity accounts).

Apply the accounting equation: The accounting equation is Assets = Liabilities + Equity. Since assets (Cash and Equipment) are increasing and equity (Owner's Capital) is increasing, the equation remains balanced.

Record the journal entry: Debit 'Cash' and 'Equipment' to reflect the increase in assets, and Credit 'Owner's Capital' to reflect the increase in equity. This ensures the transaction is properly recorded in the books.