Applying Rule of Debit and Credit- Example 1

Example 1. Mr. Kevin started a business with £50000.

Step 1- Identify the two accounts involved in this transaction

1.      Capital Account

2.      Asset Account (cash is an asset)

Step 2- Understand the nature of the impact of the transaction on the two accounts (capital and cash)

            For the business the amount of capital is increased by £50000 as result of the transaction

            Cash is also increased by £50000

Step 3- Decide which account is to be debited and which is to be credited.

            We know that when capital account increases it is to be Credited and,

            When asset account (here it is cash) increases it is to be Debited

Debit Cash Account with £50000

Credit Capital Account with £50000