COMPREHENSIVE ILLUSTRATION -- TRANSACTION IMPACT ON FINANCIAL STATEMENTS

Transaction #1:  Issued stock to shareholders, in exchange for cash

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This illustration shows how cash and capital stock both increase by $25,000.  Assets and equity increase by the same amount, leaving the balance sheet in balance.  Issuing stock does not relate to providing goods and services to customers and does not impact income or retained earnings.

Debit/Credit Logic:

• Cash is an asset account and is increasing:  Assets are increased with debits.

• Capital Stock is an equity account and is increasing:  Equity is increased with a credit.

To describe this transaction, we say:  Debit Cash for $25,000, and Credit Capital Stock for $25,000.