How To Pass Accounting Journal Entries For Owner’s Equity

Owner’ Equity Or Simply Equity is the rights of Owner /Owners, Shareholders or Stockholders in any type or kind business whether it is Sole Proprietorship or Company or Corporations.

It is to be noted that Normal Balance or Favouable Balance For Equity is Credit Balance. However, The General Rule For Equity During Recording of Business Transactions is that when the Equity increases, we debit it and when it decreases, we credit it in the Book or Journal of the Business.

For More Details, You Can Read Out This Valuable Article In Detail, “What is the Difference Between Debit And Credit”

After considering the above rule of Debit And Credit for Equity, we can easily apply this rule in the following example:

Mr. A started Business with Cash Rs. 100000. This is a Business Transaction, So Pass following Accounting Journal Entry in the Book of Business:

                                             Cash a/c    100000

                                                       Capital a/c   100000

(Mr. A Invested Into The Business By Cash Rs. 100000)

In The above Business Transaction, One Account is Cash and other One is Capital that is the right of the owner (Mr. A), who invested Cash into the business. As, the right of owner is increasing as the owner bringing his / her investment in the business, so we credit Capital Account by Rs. 100000, as a right of owner in the business. Meanwhile, the cash is also increasing, we debit it by Rs. 100000.

In case of Company, we assume that company issues shares at Par or Face Value to shareholders 40000 of Rs. 10 each share, then following Accounting Journal Entry is recorded in the book of company:

                                 Ordinary Share Application a/c 400000

                                                                                Ordinary Share Capital a/c 400000

(Shares Issued To Shareholders at @ of Rs. 10)

Here, Shares of the owners or shareholders in the business are increasing, so we credit Share Capital Account By Rs. 400000 and Debit Share Application Account by Rs. 400000, as shares are now issued to applicant applied for the shares in the Public Company.

So, it is very easy to Record Accounting Journal Entries For Equity In The Book or Journal of Any Business if you know the rules of Debit And Credit For Equity.