Multiple Choice
Which of the following is the correct journal entry to record the receipt of \$5,000 cash for consulting services provided on December 31?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Ming Chen started a business and, during June, invested \$10,000 cash into the company. Which of the following is the correct journal entry to record this transaction?
A
Debit Cash \$10,000; Credit Owner's Capital \$10,000
B
Debit Cash \$10,000; Credit Revenue \$10,000
C
Debit Owner's Capital \$10,000; Credit Cash \$10,000
D
Debit Revenue \$10,000; Credit Cash \$10,000
Verified step by step guidance1
Step 1: Understand the nature of the transaction. Ming Chen invested \$10,000 cash into the business, which means the business received cash (an asset) and the owner's equity increased due to the investment.
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 sides of the equation.
Step 3: Determine the accounts involved. The accounts affected are 'Cash' (an asset account) and 'Owner's Capital' (an equity account). Cash increases, so it will be debited, and Owner's Capital increases, so it will be credited.
Step 4: Apply the rules of debits and credits. Assets increase with a debit, and equity increases with a credit. Therefore, the journal entry will be: Debit Cash \$10,000; Credit Owner's Capital \$10,000.
Step 5: Eliminate incorrect options. 'Debit Cash \$10,000; Credit Revenue \$10,000' is incorrect because revenue is not involved in this transaction. 'Debit Owner's Capital \$10,000; Credit Cash \$10,000' is incorrect because it reverses the correct entry. 'Debit Revenue \$10,000; Credit Cash \$10,000' is incorrect because revenue is unrelated to the owner's investment.
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