CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger
Which of the following accounts is credited when the proprietor brings additional cash into the business, and what is its nature under the modern approach?
The Capital account is credited, and it represents owner's equity with a normal credit balance. Cash is debited because the asset rises, and the credit to capital shows the business owes this additional amount to the proprietor.
- ACapital account, a liability to the owner (equity) with a credit balanceCorrect
- BDrawings account, an asset with a debit balance
- CCash account, an asset with a credit balance
- DCapital account, an asset with a debit balance
Explanation
Introducing cash debits Cash (asset increases) and credits Capital (owner's equity increases). Capital normally carries a credit balance. Drawings is the account debited when the owner takes out money, so option B reverses the situation.
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