Multiple Choice
In the context of recording journal entries, which of the following best describes the effect of a debit entry to the Cash account?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
When recording a journal entry, which of the following statements about debits and credits is correct?
A
Debits always decrease all types of accounts.
B
Credits increase asset accounts and decrease liability accounts.
C
Debits increase asset accounts and decrease liability accounts.
D
Credits always increase all types of accounts.
Verified step by step guidance1
Understand the basic rule of debits and credits: Debits and credits are the two sides of every financial transaction. Debits are recorded on the left side of an account, and credits are recorded on the right side.
Learn the impact of debits and credits on different types of accounts: Debits increase asset and expense accounts, while they decrease liability, equity, and revenue accounts. Conversely, credits decrease asset and expense accounts, while they increase liability, equity, and revenue accounts.
Analyze the first statement: 'Debits always decrease all types of accounts.' This is incorrect because debits increase asset and expense accounts.
Analyze the second statement: 'Credits increase asset accounts and decrease liability accounts.' This is incorrect because credits decrease asset accounts and increase liability accounts.
Analyze the third statement: 'Debits increase asset accounts and decrease liability accounts.' This is correct because debits increase asset accounts and decrease liability accounts, aligning with the fundamental accounting principles.
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