Why are rules of debit and credit same for liability and capital?

Every business acquires funds from internal as well as from external sources. According to the business entity concept, the amount borrowed from external sources together with internal sources like, capital invested by proprietor, is termed as liability to the business. Business entity concept treats business and business owner separately. Capital of the owner is treated as liability to the business because the business has to repay the amount of capital to owner, in case of closure of business. As liability incurred is credited, in same way, fresh capital introduced and net profit increases the owner’s capital, and thus, capital is credited. On the other hand, if liability is paid, it reduces liability, and so, it is debited. Likewise, drawings from capital and net loss reduce capital, and hence, capital is debited. So, rules of debit and credit are same for both liability and capital. read less

As per company act 2013 A Company is a separate legal entity which can sue and can be sued and the separation of management is a major characteristics that the company being managed by the directors appointed by shareholder of the company. So it is well clear that shareholder are those person's or entities who invest a definite amount in a company and a company the receiver of this amount becomes debtor of those shareholder as company have to return back this money in future . Moreover the shareholding is the liability of a company which shall be paid by the company to it's shareholders in future as and when required . Shareholder investment money is called capital and it is hence proved that it shall be in liability side of balance sheet of a company read less