Question

explain why the internal liabilities that is capital considered to be a source of credit but not debit.

Answer 1

Dear Student,

As per the Business Entity Concept, business and its owners both are two separate identities. Both of them are different persons in accounting terms. Therefore, whatever capital is contributed by the owner is treated as a liability for the business and shown on the credit side (Rules of Accounting: Increase in capital is credited).

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