Journal Entries: Business Formation Example quiz #1 Flashcards
Journal Entries: Business Formation Example quiz #1
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What is the journal entry to record Johnny Clutch's investment of $50,000 in Clutch Tutoring Inc in exchange for common stock?
Debit Cash $50,000; Credit Common Stock $50,000. How does the issuance of common stock for cash affect the accounting equation for a newly formed company?
It increases assets (cash) and increases equity (common stock) by the same amount, keeping the accounting equation balanced. Why is cash debited and common stock credited when recording the owner's investment in a corporation?
Cash is debited because it is an asset that increases, and common stock is credited because it is an equity account that increases. What happens to liabilities when a company is formed by issuing common stock for cash?
Liabilities remain unchanged because the company did not borrow money; it received cash in exchange for equity. Explain the dual nature of transactions in the context of business formation journal entries.
Every transaction affects at least two accounts; in business formation, both cash (asset) and common stock (equity) increase, demonstrating the dual effect and maintaining balance in the accounting equation. What is the journal entry to record Johnny Clutch's investment of $50,000 in Clutch Tutoring Inc in exchange for common stock?
Debit Cash $50,000; Credit Common Stock $50,000. How does the issuance of common stock for cash affect the accounting equation for a newly formed company?
It increases assets (cash) and increases equity (common stock) by the same amount, keeping the accounting equation balanced. Why is cash debited and common stock credited when recording the owner's investment in a corporation?
Cash is debited because it is an asset that increases, and common stock is credited because it is an equity account that increases. What happens to liabilities when a company is formed by issuing common stock for cash?
Liabilities remain unchanged because the company did not borrow money; it received cash in exchange for equity. Explain the dual nature of transactions in the context of business formation journal entries.
Every transaction affects at least two accounts; in business formation, both cash (asset) and common stock (equity) increase, demonstrating the dual effect and maintaining balance in the accounting equation.
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