How would you record the issuance of common stock in accounting?

The correct approach to recording the issuance of common stock is to debit cash and credit common stock. This reflects the inflow of cash received from shareholders in exchange for ownership in the company, which increases the company's assets. By debiting cash, the accounting records acknowledge that cash has been received, increasing the company's cash asset. Conversely, crediting common stock indicates an increase in the equity section of the balance sheet, as the company is issuing shares to its investors.

This transaction ensures that the accounting equation remains balanced; the increase in cash (asset) is matched by an increase in equity (common stock). It's a fundamental aspect of double-entry accounting that every transaction affects at least two accounts to maintain the integrity of the financial statements.

Other options suggest debiting or crediting accounts in a manner that does not accurately represent the flow of assets and equity during a common stock issuance, ultimately misunderstanding the core principles of how stock transactions are recorded in financial accounting.