Which describes the effect of receiving cash from the owner as an additional investment?

Which describes the effect of receiving cash from the owner as an additional investment?

• A. Cash increases; Owner's equity decreases
• B. Cash decreases; Owner's equity increases
• C. Cash increases; Owner's equity increases
• D. Cash decreases; Owner's equity decreases

Answer: (C)

An owner's additional investment increases both the cash asset and the owner's equity. When the owner puts more cash into the business, cash rises and contributed capital (owner's equity) also rises, reflecting the increased stake in the company. In double-entry terms, this is recorded as a debit to Cash and a credit to Owner's Capital. The other descriptions would imply cash or equity moving in the opposite direction, which does not match an additional investment.

An owner's additional investment increases both the cash asset and the owner's equity. When the owner puts more cash into the business, cash rises and contributed capital (owner's equity) also rises, reflecting the increased stake in the company. In double-entry terms, this is recorded as a debit to Cash and a credit to Owner's Capital. The other descriptions would imply cash or equity moving in the opposite direction, which does not match an additional investment.