What Is Effect of Increases An Asset And Increases Equity On Accounting Equation

An increase in Assets and Owner’s Equity or Equity affects both sides of the Accounting Equation. When an asset account increases with the increase in equity account, then we debit asset account and credit equity account according to the Rules of Debit And Credit.

Example: Mr. A invested Rs. 50000 into business with cash. The journal entry to record is shown below:

                                                              Cash a/c  50000

                                                                             Capital a/c  50000

                                                             (Business Started with Cash)

Here Cash as a Current Asset is increased by Rs. 50000 and capital which is a part of owner’s equity is also increased by Rs. 500000.

As we know the accounting equation:

                                         Assets    =    Liabilities + Owner’s Equity

                                          Cash      =                   +        Capital

                                        +50000    =                   +        +50000

So, both sides i.e., Asset side increased by Rs. 50000 as the increase of cash should be added to assets while Liabilities & Owner’s Equity side also increases as increase of capital of Rs. 50000 should also be added to the owner’s equity, but the accounting equation remains equal.