JournaldrillOwner investment
When an owner invests in the business, debit the asset received (usually Cash) and credit Owner's Capital for a sole proprietorship or Common Stock for a corporation. The business gains an asset and the owner's equity claim rises by the same amount; it is not revenue.
Syntax
Dr Cash (or other asset) / Cr Owner's Capital (or Common Stock)| Part | What it is |
|---|---|
Cash | Asset account debited for the money invested. |
Equipment / Vehicle | Asset account debited at fair value when the owner contributes a non-cash asset. |
Owner's Capital | Equity account credited in a sole proprietorship or partnership (one capital account per partner). |
Common Stock | Equity account credited in a corporation when shares are issued for the investment. |
Examples
Dr Cash 25,000 / Cr Owner's Capital 25,000Result: Assets up 25,000, equity up 25,000
Sole proprietor starts the business with cash.
Dr Cash 10,000, Dr Equipment 8,000 / Cr Owner's Capital 18,000Result: Assets up 18,000, equity up 18,000
Owner contributes cash plus a machine worth 8,000 at fair value.
Dr Cash 50,000 / Cr Common Stock 50,000Result: Assets up 50,000, equity up 50,000
Corporation issues no-par shares to the founder for cash.
Common mistakes
- Crediting Revenue for the investment: money from the owner is capital, not income, so it never touches the income statement.
- Recording a contributed asset at the owner's original cost: use its fair value on the date it is contributed.
- Crediting Owner's Drawing or Dividends: those are the opposite accounts, used when money goes out to the owner, not in.
Practice Owner investment
These drills check your answer on live data, free, no account needed.
- Owner investmentMaria Rivera opens Rivera Lawn Care, a sole proprietorship, by depositing $15,000 of her personal savings into the business checking account.
Questions
Is owner investment a debit or credit?
Cash (the asset) is debited and Owner's Capital (equity) is credited. Equity increases with a credit.
Is an owner's investment counted as income?
No. It is a contribution of capital and appears in equity on the balance sheet, not on the income statement.
What if the owner lends money instead of investing it?
Then the business owes the money back, so credit a liability such as Loan from Owner or Notes Payable instead of capital.
Related
- Owner withdrawal and dividendsHow to record an owner drawing cash (Dr Owner's Drawing, Cr Cash) and a corporation declaring and paying dividends (Dr Dividends, Cr Dividends Payable).
- Issuing stockHow to record a stock issue: Dr Cash, Cr Common Stock at par and Cr Paid-in Capital in Excess of Par. No-par shares, preferred stock and stock for assets.
- Debits and creditsDebits and credits in plain English: the rule for assets, liabilities, equity, revenue and expenses, the DEALER memory aid and worked entries.
- Journal entry formatThe standard journal entry format: date, debit accounts first, credits indented, amounts in two columns and a short explanation. Simple and compound examples.