When a proprietor invests additional cash in the business, what happens to the capital account?

When a proprietor invests additional cash in the business, what happens to the capital account?

• A. Debited
• B. Credited
• C. Not affected
• D. Increased

Answer: (B)

When a proprietor invests additional cash into the business, the capital account is credited. This process reflects that the owner's equity in the business has increased due to their investment. In accounting terms, a credit to the capital account indicates an increase in the owner's equity, which represents the proprietor’s stake in the business. The cash investment represents an influx of resources that adds to the overall value of the capital account, hence the need to credit it. The capital account tracks the amount invested by the owner and any additional net income the business generates over time, minus any withdrawals made by the proprietor. When cash is introduced into the business as additional investment, it signifies that the owner has a greater claim to the assets of the business, warranting a credit entry to reflect this growth in equity.

When a proprietor invests additional cash into the business, the capital account is credited. This process reflects that the owner's equity in the business has increased due to their investment. In accounting terms, a credit to the capital account indicates an increase in the owner's equity, which represents the proprietor’s stake in the business. The cash investment represents an influx of resources that adds to the overall value of the capital account, hence the need to credit it.

The capital account tracks the amount invested by the owner and any additional net income the business generates over time, minus any withdrawals made by the proprietor. When cash is introduced into the business as additional investment, it signifies that the owner has a greater claim to the assets of the business, warranting a credit entry to reflect this growth in equity.