Home › ACCA › Financial Accounting › Asset, Liability and Equity Accounts › An investor contributes $10,000 cash to open a n…
An investor contributes $10,000 cash to open a new corporation's bank account. What is the journal entry?
ADebit Share Capital $10,000; credit Cash $10,000
BDebit Cash $10,000; credit Share Capital $10,000
CDebit Cash $10,000; credit Retained Earnings $10,000
DDebit Cash $10,000; credit Fees Earned $10,000
Answer & Solution
Correct answer: B. Debit Cash $10,000; credit Share Capital $10,000
1. Cash, an asset, increases by $10,000, so Cash is debited.
2. The owner's investment is recorded in Share Capital, which increases and is credited.
3. Investment is not profit, so Retained Earnings is wrong (C); it is not revenue, so Fees Earned is wrong (D).
4. Option A reverses the entry.
5. Therefore debit Cash $10,000 and credit Share Capital $10,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.5.4 "Balance Sheet Account Transactions", p.38_
Related questions
At month end, the Cash Dividends account with a $1,000 debit balance is closed. What is thA corporation pays $1,000 of dividends to its shareholders. What is the correct journal enWhen a business buys equipment that will last several years, why is the cost debited to EqEquipment costing $5,000 is bought with a $1,000 cash down payment and a $4,000 loan. WhatThe Cash Dividends account is best described as which type of account?Total equity of a corporation is made up of the balances in which two accounts?A key advantage of organising a business as a corporation rather than a sole proprietorshiUnder the cost principle, at what amount are assets recorded in the journal?