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Why is equity/capital credit in nature?

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Question added by Muhammad Nouman Shafique Awan
Date Posted: 2013/08/19
Khalid Noor
by Khalid Noor , Accounting Manager , FedEx

Double Entry Accounting's basic rule is, for every entry there must be an equal and opposite entry. 
If a person invest CU50,000 into his company in cash, Cash is debited showing an increase, while Capital is Credited, the opposite entry. 
The accounting equation is Assets = Liabilities + Owners Equity (Capital) A better way of putting this might have been Assets - Liabilities = Owners Equity (Capital) Which tells me, the OE (Capital) of any company is equal to what is left after all liabilities are subtracted (deducted) from the companies assets. 
The transaction mentioned above would look like this CU50,000 = CU0 + CU50,000 A = L + OE or CU50,000 - CU0 = CU50,000 A - L = OE    CU = Currency unit  

Shahan Arshad
by Shahan Arshad , Senior Analyst , Pakistan Business Council

Because you use it to acquire assets.
Assets are debited or acquired; and liability and equity is credited against them (paid for assets by liability and equity).

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