When you make a contribution to your business from your personal bank account, which journal entry correctly records this transaction?

• A. Debit Owner's Capital; Credit Cash
• B. Debit Expenses; Credit Cash
• C. Debit Cash; Credit Owner's Capital
• D. Debit Cash; Credit Revenue

Answer: (C)

Verified step by step guidance

1. Understand the nature of the transaction: A contribution from your personal bank account to your business is considered an investment by the owner into the business. This increases the business's cash and the owner's equity (Owner's Capital).
2. Identify the accounts involved: The two accounts affected are 'Cash' (an asset account) and 'Owner's Capital' (an equity account).
3. Determine the impact on each account: Since the business is receiving cash, the 'Cash' account will increase, which requires a debit entry. The 'Owner's Capital' account represents the owner's equity, which increases with a credit entry.
4. Apply the accounting equation: The accounting equation is Assets = Liabilities + Equity. In this case, the increase in 'Cash' (an asset) is balanced by the increase in 'Owner's Capital' (equity), ensuring the equation remains balanced.
5. Record the journal entry: The correct journal entry is to debit 'Cash' and credit 'Owner's Capital', reflecting the increase in the business's cash and the owner's equity.