When a business owner deposits their own money into the business, how does that affect the accounting equation?

Accounting Dec 16, 2020

Expert Solution

Basic accounting equation is Assets = Liabilities + Owner's Equity

When a business owner deposits their own money into the business, the effect on the basic accounting equation would be an increase in both the total Assets and Owner's equity. The journal entry for this transaction is as follows:

Account	Debit	Credit
Cash	XXX
Capital		XXX

Cash account is a component of the total assets, and a debit to this account represents an increase. Capital account is a component of the Owner's Equity, and a credit to this account represents an increase.

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