Multiple Choice
Consider Jasper’s balance sheet. Which of the following shows how to calculate Jasper’s net worth?
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1. Introduction to Accounting
Fundamental Accounting Equation
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In the context of the fundamental accounting equation, the left side of an account is used to record which of the following?
A
Debits
B
Assets only
C
Liabilities only
D
Credits
Verified step by step guidance1
Understand the fundamental accounting equation: Assets = Liabilities + Equity. This equation forms the basis of double-entry accounting.
Recognize that in accounting, each account has two sides: the debit side (left) and the credit side (right). Debits and credits are used to record changes in accounts.
Learn that debits increase asset accounts and expense accounts, while credits decrease them. Conversely, credits increase liability accounts, equity accounts, and revenue accounts, while debits decrease them.
Focus on the question: The left side of an account is used to record debits. Debits are associated with increases in assets and expenses, and decreases in liabilities and equity.
Conclude that the correct answer is 'Debits' and that debits are primarily used to record changes in asset accounts, not liabilities or credits.
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