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Which of the following accounts normally has a debit balance?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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In journal entries, which statement correctly describes how Common Stock is recorded when a corporation issues shares for cash?
A
Common Stock is debited because it is an equity account that increases on the debit side.
B
Common Stock is debited when shares are issued for cash and credited when shares are issued for services.
C
Common Stock is credited only when the corporation repurchases its own shares (treasury stock).
D
Common Stock is credited because it is an equity account that increases on the credit side.
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Understand that Common Stock is an equity account representing ownership in a corporation.
Recall the accounting rule that equity accounts increase with credits and decrease with debits.
When a corporation issues shares for cash, it receives an asset (cash), which increases with a debit entry.
Simultaneously, the Common Stock account increases, so it is credited to reflect the issuance of shares.
Therefore, the journal entry for issuing shares for cash debits Cash and credits Common Stock, showing the increase in equity.
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