Zen began a new consulting firm on January 5 by investing \$20,000 cash into the business. Which of the following is the correct journal entry to record this transaction?

• A. Debit Cash \$20,000; Credit Consulting Revenue \$20,000
• B. Debit Consulting Revenue \$20,000; Credit Cash \$20,000
• C. Debit Owner's Capital \$20,000; Credit Cash \$20,000
• D. Debit Cash \$20,000; Credit Owner's Capital \$20,000

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the nature of the transaction. Zen is investing \$20,000 cash into the business, which increases the business's cash account (an asset) and also increases the owner's equity in the business.
2. Step 2: Recall the accounting equation: Assets = Liabilities + Owner's Equity. Since cash is an asset and the investment increases owner's equity, this transaction affects both the asset and equity sides of the equation.
3. Step 3: Determine the accounts involved. The cash account (an asset) will be debited because it is increasing, and the owner's capital account (an equity account) will be credited because it is also increasing.
4. Step 4: Apply the rules of debits and credits. Assets increase with debits, so Cash is debited \$20,000. Equity increases with credits, so Owner's Capital is credited \$20,000.
5. Step 5: Write the journal entry. The correct journal entry is: Debit Cash \$20,000; Credit Owner's Capital \$20,000. This reflects the increase in assets and equity due to the owner's investment.