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

Zen began a new consulting firm on January 5 by investing $20,000 cash into the business. Which of the following is the correct journal entry to record this transaction?

Debit Cash $20,000; Credit Consulting Revenue $20,000

Debit Consulting Revenue $20,000; Credit Cash $20,000

Debit Owner's Capital $20,000; Credit Cash $20,000

Debit Cash $20,000; Credit Owner's Capital $20,000

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Verified step by step guidance

Step 1: Understand the nature of the transaction. Zen is investing $20,000 cash into the business, which increases the business's cash account (an asset) and also increases the owner's equity in the business.

Step 2: Recall the accounting equation: Assets = Liabilities + Owner's Equity. Since cash is an asset and the investment increases owner's equity, this transaction affects both the asset and equity sides of the equation.

Step 3: Determine the accounts involved. The cash account (an asset) will be debited because it is increasing, and the owner's capital account (an equity account) will be credited because it is also increasing.

Step 4: Apply the rules of debits and credits. Assets increase with debits, so Cash is debited $20,000. Equity increases with credits, so Owner's Capital is credited $20,000.

Step 5: Write the journal entry. The correct journal entry is: Debit Cash $20,000; Credit Owner's Capital $20,000. This reflects the increase in assets and equity due to the owner's investment.