A company issues additional shares of common stock for cash. Which of the following journal entries is correct?Question 26Answera.Debit Cash, Credit Common Stockb.Debit Cash, Credit Retained Earningsc.Debit Retained Earnings, Credit Common Stockd.Debit Common Stock, Credit Cash
Question
A company issues additional shares of common stock for cash. Which of the following journal entries is correct?Question 26Answera.Debit Cash, Credit Common Stockb.Debit Cash, Credit Retained Earningsc.Debit Retained Earnings, Credit Common Stockd.Debit Common Stock, Credit Cash
Solution
The correct journal entry when a company issues additional shares of common stock for cash is:
a. Debit Cash, Credit Common Stock
Here's why:
When a company issues additional shares, it receives cash. This increases the company's cash account, which is an asset. In accounting, an increase in an asset account is a debit.
On the other hand, the issuance of shares increases the company's common stock account, which is an equity account. In accounting, an increase in an equity account is a credit.
Therefore, the correct journal entry is to debit the cash account and credit the common stock account.
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