Debit and Credit Effects for Owner's Equity

Owner's equity represents the owner's claim on the business assets after settling liabilities. It includes capital, drawings from the capital account, and retained earnings.
In accounting, credits increase the owner's equity while debits decrease it.
Consider Sarah. She starts a small bakery business by investing ten thousand dollars.
She contributed the entire ten thousand dollars in cash. 
The business records a debit to the cash account, increasing its assets, and a credit to the owner's capital, which increases the owner's equity.
Later, Sarah withdraws two thousand dollars to pay for personal expenses.
This withdrawal is recorded as a credit to the cash account, reducing assets, and a corresponding debit to the drawing account, which reduces the owner’s equity.
Revenues, such as sales, also increase the owner’s equity through credits, while expenses, like rent, decrease it through debits.
Understanding the effect of debits and credits on owner’s equity helps Sarah track how much of the business truly belongs to her at any given time.