Consulting Case Interview Practice Questions

Answer - A - When capital is increased in the double-entry method of accounting, the result is a credit. Both capital-another term for owner’s equity-and liabilities are increased by a credit entry.

Key Takeaway: Liabilities and capital are increased with a credit entry and decreased with a debit entry. Assets are increased with a debit entry and decreased with a credit entry. One way to remember this is to recall the accounting equation: Assets = Liabilities + Owner’s Equity. Assets are on the left side of the equation, as is a debit entry. Liabilities and owner’s equity are on the right side of the equation, as are credit entries to increase these types of accounts.