In the journal entry to issue shares for cash, which normal balance does the Common Stock account have and how is it recorded?

• A. Common Stock has a normal debit balance and is recorded with a credit.
• B. Common Stock has a normal credit balance and is recorded with a credit.
• C. Common Stock has a normal debit balance and is recorded with a debit.
• D. Common Stock has a normal credit balance and is recorded with a debit.

Answer: (B)

Verified step by step guidance

1. Understand that the Common Stock account represents the ownership equity in a company and is part of shareholders' equity on the balance sheet.
2. Recall that equity accounts, including Common Stock, typically have a normal credit balance because they represent claims against the company's assets.
3. When shares are issued for cash, the company receives cash (an asset), which increases with a debit entry to the Cash account.
4. Simultaneously, the Common Stock account increases to reflect the new shares issued, which is recorded as a credit entry because it is an equity account with a normal credit balance.
5. Therefore, the journal entry to issue shares for cash involves debiting Cash and crediting Common Stock, consistent with their normal balances.