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

Kiley Corporation was formed in 2022. The owners invested $50,000 cash in exchange for common stock. Which of the following is the correct journal entry to record this transaction?

Debit Cash $50,000; Credit Common Stock $50,000

Debit Common Stock $50,000; Credit Cash $50,000

Debit Retained Earnings $50,000; Credit Cash $50,000

Debit Cash $50,000; Credit Revenue $50,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. The owners are investing cash into the corporation in exchange for common stock. This is an equity transaction, not a revenue or retained earnings transaction.

Step 2: Identify the accounts involved. The two accounts affected are 'Cash' (an asset account) and 'Common Stock' (an equity account). Cash increases because the corporation receives money, and Common Stock increases because the corporation issues stock.

Step 3: Determine the type of entry for each account. Since Cash is increasing, it will be debited. Common Stock, representing an increase in equity, will be credited.

Step 4: Write the journal entry. The journal entry will be: Debit Cash $50,000; Credit Common Stock $50,000. This reflects the increase in assets and equity due to the investment.

Step 5: Verify the entry. Ensure that the debit and credit amounts are equal ($50,000 each) and that the accounts used correctly reflect the nature of the transaction (Cash for the asset increase and Common Stock for the equity increase).