Issuing common stock for $5,000 cash is recorded as:

Question

BlackTom AI · Accepted Answer

Issuing stock for cash increases an asset (Cash) and increases owners’ equity (Common Stock). Under double-entry bookkeeping, every transaction must keep the accounting equation (Assets = Liabilities + Equity) in balance by recording equal debits and credits.

1) Relevant knowledge points and concepts
- Assets increase with debits and decrease with credits. Cash is an asset.
- Equity (specifically Contributed Capital/Common Stock) increases with credits and decreases with debits.
- Issuing stock for cash is a capital contribution, not revenue or a dividend distribution.
- A journal entry must debit the account that increases (Cash) and credit the equity account that increases (Common Stock).

2) Step-by-step reasoning
- Company receives $5,000 cash: Cash (asset) increases by $5,000 → record a debit to Cash for $5,000.
- Company issues shares in exchange: Common Stock (equity) increases by $5,000 → record a credit to Common Stock for $5,000.
- Debits and credits are equal ($5,000 each), so the accounting equation remains balanced.

3) Intermediate/calculation steps
- Before: Assets = A, Equity = E.
- After: Assets = A + 5,000; Equity = E + 5,000 → Assets = Liabilities + Equity still holds.
- Journal entry: Debit Cash $5,000; Credit Common Stock $5,000.

4) Why the correct answer is correct
This entry directly reflects the increase in the Cash asset and the corresponding increase in Contributed Capital. It follows the rules for debits and credits and keeps the books balanced.

5) Why the other options are incorrect
- Crediting Service Revenue: Revenues are recognized for earned income, not for capital contributions; issuing stock is not revenue.
- Crediting Dividends: Dividends reduce retained earnings and are recorded when declared; they are not used when issuing stock.
- Debiting Common Stock and crediting Cash: This would decrease equity and decrease assets, which is the opposite of the actual effect.

6) Conclusion
Therefore, the correct journal entry is debit Cash $5,000, credit Common stock $5,000, which matches the provided answer.

Issuing common stock for $5,000 cash is recorded as:单项选择题

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