The investement of cash in the business by the owner increases total assets and total equity.

Question

Quizplus · Accepted Answer

When the owner invests cash in the business, it becomes part of the total assets of the business. Since equity represents the residual interest in the assets after liabilities have been paid, an increase in assets will also result in an increase in total equity, thus boosting its value. This relationship is captured by the basic accounting equation, which states that assets must always be equal to the sum of liabilities and owner's equity.

The Investement of Cash in the Business by the Owner