Question

In the given transaction where cash is received from the owner as an investment of $1,500.00, which account is debited and which account is credited?

A) Cash account is debited, Owner's Equity account is credited.
B) Owner's Equity account is debited, Cash account is credited.
C) Cash account is debited, Revenue account is credited.
D) Cash account is debited, Expense account is credited.

Answer 1

The correct entry for receiving cash from the owner as an investment is to debit the Cash account and credit the Owner's Equity account, reflecting an increase in assets and owner's equity.

Step-by-step explanation:

In the given transaction where cash is received from the owner as an investment of $1,500.00, the correct answer is that the Cash account is debited and the Owner's Equity account is credited (Option A). This is because in accounting, when the owner invests money into their business, it increases the Cash asset of the business (hence the debit) and simultaneously increases the Owner's Equity, reflecting the owner's total invested capital and retained earnings in the business (hence the credit).

According to double-entry bookkeeping, every financial transaction has equal and opposite effects in at least two different accounts. It is represented in a T-account structure, where the debits are recorded on the left side and the credits on the right side. In this case, the transaction would be recorded with a debit to the Cash account and a credit to the Owner's Equity account. This transaction would increase assets (Cash) and equally increase owner's equity, keeping the accounting equation (Assets = Liabilities + Owner's Equity) balanced.