Question

If an owner of a company invests $100,000 into the business and receives shares of ownership in return, the company will:

Answer 1

The company would credit the equity and debit cash by $100,000.

Step-by-step explanation:

‘Balance Sheet’ shows the liabilities, assets and equity of a company at a particular point of time. Assets are the items that the company own, liability is the obligation of the company and equity is the net assets, i.e., the difference between the assets and the liabilities.

Now, if the owner is investing $100,000 in the company then it will have the following effects:

1. Increase cash in the company by $100,000.

2. Increase the equity of the company by $100,000.

Thus, the assets as well as the equity of the company would increase by $100,000.

The company would post the following journal entry:

Cash Dr. $100,000

To Equity $100,000