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Best answer to first answer.. when does owners' equity increase?
if a company issued $2000 of shares, receiving cash from investors, that would mean cash increases by $2000 but what would the effect be on owners' equity? would it increase or decrease by $2000? why? (i'm very confused)
my teacher said owners' equity must either increase/decrease by $2000 as well.. i just don't understand how to know whether it increases or decreases?
3 Answers
- JamesLv 41 decade agoFavorite Answer
I am confused too. Equity takes time to accrue it does not change instantly.
- JKRBLv 71 decade ago
Asset = Liabilities + Equity
The basic accounting equation must always stay in balance with each transaction. In your case the journal entry would be:
Dr Cash 2,000
Cr Common Stock 2,000
Cash is an asset account, and when an asset account is debited, it increases. Common Stock is an equity account, and when an equity account is credited, it increases. So both assets and Owner's Equity increase by $2,000, the basic accounting equation stays in balance.
- Anonymous1 decade ago
$2000 of cash will be on the debit side, and $2000 equity will be on the credit side.Yes it increases $2000.The company can use this money for investment.
Source(s): Anjaree
