Question

Lox, Stock and Bagel, Inc., issued $100,000 of common stock. It recorded the transaction by increasing Cash and decreasing Common Stock. As a result of this entry, ______.

Answer 1

The recording of the transaction in that way will lead to the transaction being recorded in the wrong account.

Effects of an issuance of common stock

• Cash will increased because the stock will be sold.
• Common stock will increase as well because shares represent an ownership interest.

The decrease in the Common stock was therefore the wrong thing to do as the common stock should have been increased instead.

In conclusion, the common stock was recorded wrongly.

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