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 forming a business, the owner invests $10,000 cash and equipment valued at $5,000 into the company. Which of the following is the correct journal entry to record this transaction?

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

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

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

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

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Verified step by step guidance

Step 1: Understand the transaction. The owner is investing cash and equipment into the business. This increases the assets of the business (Cash and Equipment) and also increases the Owner's Capital account, which represents the owner's equity in the business.

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

Step 3: Determine the nature of each account change. Cash and Equipment are increasing, so they will be debited. Owner's Capital is increasing, so it will be credited.

Step 4: Apply the accounting equation (Assets = Liabilities + Equity). Since the owner is contributing assets (Cash and Equipment) to the business, the increase in assets is balanced by an increase in equity (Owner's Capital).

Step 5: Write the journal entry. Debit Cash for $10,000, Debit Equipment for $5,000, and Credit Owner's Capital for $15,000. This ensures the transaction is properly recorded in the books.