28.03.2023 - 06:31

Define “investments by owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments?

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Define ‘investments by owners’ and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments?

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  • Famousbaby
    April 9, 2023 в 19:09

    'Investments by owners' refer to the contributions made by the owners of a company to finance its operations or expansion. This type of transaction involves the transfer of money or other assets from the owners to the company in exchange for ownership rights or an increased share in the company's profits.

    Examples of 'investments by owners' include:

    1. Cash investments made by shareholders in exchange for newly issued shares of stock.
    2. Contributions of property or equipment by the owners in exchange for shares of stock.
    3. Additional investments made by the owners in the form of loans to the company.

    When owners make investments in the company, the financial statement element that is typically affected, other than equity, is the 'assets' element. This is because the investments increase the company's resources, which can be used to fund its operations, purchase additional assets, or pay off debts.

    For example, if a shareholder invests $100,000 in a company by purchasing newly issued shares of stock, the company's cash account will increase by $100,000, which will be recorded as an asset on the balance sheet. This transaction will also increase the equity of the company, as the shareholder now has an ownership interest in the company. However, the primary impact of the investment is on the assets of the company.

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