Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When recording journal entries, which of the following statements about debits and credits is correct?

Debits increase asset accounts and decrease liability accounts.

Credits increase both asset and expense accounts.

Debits always decrease equity accounts.

Credits decrease liability accounts and increase asset accounts.

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Verified step by step guidance

Understand the basic principles of debits and credits: In accounting, debits and credits are used to record transactions in the ledger. Debits are recorded on the left side of an account, while 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. Credits, on the other hand, increase liability, equity, and revenue accounts, while they decrease asset and expense accounts.

Analyze the first statement: 'Debits increase asset accounts and decrease liability accounts.' This is correct because debits increase assets (e.g., cash, inventory) and decrease liabilities (e.g., loans payable).

Evaluate the second statement: 'Credits increase both asset and expense accounts.' This is incorrect because credits decrease asset accounts and expense accounts, not increase them.

Review the remaining statements: 'Debits always decrease equity accounts' is incorrect because debits can increase equity accounts in certain cases (e.g., withdrawals). 'Credits decrease liability accounts and increase asset accounts' is also incorrect because credits increase liabilities and decrease assets.