Multiple Choice
When recording a transaction in the general journal, after identifying the accounts involved, what is the next step?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Which of the following accounts increases with a credit?
A
Inventory
B
Prepaid Expenses
C
Accounts Payable
D
Cash
Verified step by step guidance1
Understand the nature of accounts: In accounting, accounts are classified into five main categories: Assets, Liabilities, Equity, Revenue, and Expenses. Each type of account has a normal balance side, which determines whether it increases with a debit or a credit.
Review the normal balance of each account: Assets (e.g., Inventory, Prepaid Expenses, Cash) typically increase with a debit, while Liabilities (e.g., Accounts Payable) and Equity typically increase with a credit.
Analyze the given accounts: Inventory, Prepaid Expenses, and Cash are asset accounts, which increase with a debit. Accounts Payable is a liability account, which increases with a credit.
Apply the accounting rule: Since Accounts Payable is a liability account, it follows the rule that liabilities increase with a credit. This is consistent with the normal balance side of liability accounts.
Conclude the correct answer: Based on the analysis, the account that increases with a credit is Accounts Payable.
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