Question

Sally Smith decided to start a sea shell business. Her initial investment in the business consisted of $10,000 in cash. Record this transaction in the accounting equation of the new business by:

Answer 1

Based on the transaction that Sally engaged in, recording it will involve:

• Debiting cash for $10,000.
• Crediting equity for $10,000.

Recording Sally's transaction.

• The cash transaction is an investment which will be recorded in the Shareholder's Equity account.
• The investment came in cash so will go to the cash account.

When cash is increased as was the case here, it should be debited. When equity increases as was the case here once more, it is to be credited.

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