Two friends launch a new business by investing $25,000 each.They are given shares as evidence of their ownership interest.What effect does this transaction have on the accounting equation?

Question

Quizplus · Accepted Answer

Investing $25,000 by each friend will increase the assets of the business by a total of $50,000 (contributed capital). Therefore, the left side of the accounting equation (Assets) will increase by $50,000. Additionally, contributed capital will also increase by $50,000 (right side of the equation), since the friends invested $25,000 each. There is no effect on liabilities or retained earnings in this transaction.

Two Friends Launch a New Business by Investing $25,000 Each