If Z best, inc. issued $1,000,000 of common stock for cash. by accident, z best recorded the transaction by increasing cash and decreasing stockholders' equity. as a result of this entry,
- Common stock is understated
- Stockholders' equity is understated
- The accounting equation is out of balance
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Common stock for cash</h3>
Since the company issued the amount of $`1,000,000 of common stock for cash.
The journal entry will be
Debit Cash $1,000,000
Credit Common stock $1,000,000
Hence, if the company recorded the transaction by increasing cash and decreasing stockholders' equity this means that Common stock is understated, Stockholders' equity is understated and the accounting equation is out of balance.
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