When Lita Lopez started Biz Consulting by investing \$10,000 cash into the business, how should this transaction be recorded in the accounting records?

• A. Debit Owner's Capital \$10,000; Credit Cash \$10,000
• B. Debit Cash \$10,000; Credit Owner's Capital \$10,000
• C. Debit Cash \$10,000; Credit Consulting Revenue \$10,000
• D. Debit Consulting Revenue \$10,000; Credit Cash \$10,000

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. Lita Lopez is investing \$10,000 cash into the business, which means the business is receiving cash and the owner's equity in the business is increasing.
2. Step 2: Identify the accounts involved. The two accounts affected are 'Cash' (an asset account) and 'Owner's Capital' (an equity account).
3. Step 3: Determine the type of account and the impact of the transaction. Cash is an asset account, and it increases with a debit. Owner's Capital is an equity account, and it increases with a credit.
4. Step 4: Apply the double-entry accounting principle. For every transaction, there must be at least one debit and one credit of equal amounts. In this case, debit the 'Cash' account for \$10,000 and credit the 'Owner's Capital' account for \$10,000.
5. Step 5: Record the journal entry. The journal entry would be: Debit Cash \$10,000; Credit Owner's Capital \$10,000. This reflects the increase in assets (cash) and the increase in equity (owner's capital).