A company receives $500 of cash as an additional investment in the company by its owner, Mary Smith. The companys Cash account is increased and Mary Smith, Capital is increased.Should the $500 entry to Mary Smith, Capital be a debit?

FINANCIAL ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A company receives $500 of cash as an additional investment in the company by its owner, Mary Smith. The company’s Cash account is increased and Mary Smith, Capital is increased.Should the $500 entry to Mary Smith, Capital be a debit?

A	yes
B	no

Explanation:

Detailed explanation-1: -When an owner invests cash in a business, owner’s equity decreases. The capital account is a liability account. When a business pays cash for insurance, a liability is increased. A balance sheet has two major sections, assets and liabilities.

Detailed explanation-2: -When an owner draws $5, 000 from a sole proprietorship or when a corporation declares and pays a $5, 000 dividend, the asset Cash decreases by $5, 000. What is the other effect on the balance sheet? Owner’s/Stockholders’ Equity will decrease-keeping the accounting equation and the balance sheet in balance.

Detailed explanation-3: -When cash is received, the cash account is debited. When cash is paid out, the cash account is credited.

Detailed explanation-4: -If you invest more money, your assets in the company will increase (debit) and your equity in the company will also increase (credit).

There is 1 question to complete.

BACHELOR OF BUSINESS ADMINISTRATION

BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING