If the owner contributes cash to the business, what is the effect on the accounting equation?

If the owner contributes cash to the business, what is the effect on the accounting equation?

• A. Assets increase; Equity increases
• B. Assets decrease; Equity increases
• C. Assets increase; Liabilities increase
• D. Assets increase; Revenue increases

Answer: (A)

When the owner contributes cash, the business receives more cash (an asset) and the owner’s stake in the business increases (owner’s equity). In the accounting equation, this means both sides rise: assets go up and equity goes up, keeping the equation balanced. It does not affect liabilities, and it is not revenue, since revenue comes from the business’s operations, not from owner investments. A simple way to record this is a debit to Cash and a credit to Owner’s Capital.

When the owner contributes cash, the business receives more cash (an asset) and the owner’s stake in the business increases (owner’s equity). In the accounting equation, this means both sides rise: assets go up and equity goes up, keeping the equation balanced. It does not affect liabilities, and it is not revenue, since revenue comes from the business’s operations, not from owner investments. A simple way to record this is a debit to Cash and a credit to Owner’s Capital.