Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

When investors place cash in a business, how is this reflected on the balance sheet?

1. As a liability

2. As revenue

3. As an asset

4. As expense

The correct answer is: As an asset

When investors place cash in a business, it is reflected on the balance sheet as an asset. Cash is considered one of the most liquid forms of assets that a business can have, meaning it can be used quickly to settle obligations or reinvest in operations. When the business receives cash from investors, it increases the company's cash account under assets, indicating that the company has resources available to fund its activities. This infusion of cash does not create a liability since it is not something the company owes; instead, it represents ownership interest. The increase in cash from investors can also correspond with an increase in equity, as it shows that the investors have a stake in the business, thus reflecting their contribution directly on the balance sheet. The other options do not accurately represent the nature of this transaction: - A liability would imply an obligation to repay money, which does not apply here since the investors are providing capital rather than taking a loan. - Revenue refers to income earned from operations, generated through goods or services sold, and does not encompass direct cash investments. - An expense represents costs incurred by the business for operations and does not apply to the cash contribution from investors. Thus, cash from investors increases the asset side of the balance sheet, affirming that it