Mary Ann Powers is starting her computer programming business and deposited as an investment $25,000 into the business checking account. What is one effect this will have on the accounting equation?

Question

Decrease in stock

Increase in liabilities

Increase in owner's equity

Increase in revenues

Answer 1

When Mary Ann Powers deposits $25,000 into her business checking account as an investment, this transaction will have the effect of increasing owner's equity. This is because the investment represents an increase in the owner's stake in the business.

In terms of the accounting equation, which is:

Assets = Liabilities + Owner's Equity

The $25,000 deposit increases the assets (cash in the checking account) and also increases owner's equity, reflecting her ownership in the business. Therefore, the correct answer is:

Increase in owner's equity.