Multiple Choice
When creating a personal balance sheet, which of the following statements about debits and credits is correct?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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When an asset or liability is initially recorded in the accounting system, which of the following is true?
A
Both assets and liabilities are credited.
B
Both assets and liabilities are debited.
C
An asset is credited and a liability is debited.
D
An asset is debited and a liability is credited.
Verified step by step guidance1
Understand the basic accounting principle: In double-entry accounting, every transaction affects at least two accounts, and the total debits must equal the total credits.
Recall the definitions: Assets represent resources owned by the company, and liabilities represent obligations owed by the company.
When an asset is acquired, it increases the company's resources. To record this increase, the asset account is debited (increased).
When a liability is incurred, it increases the company's obligations. To record this increase, the liability account is credited (increased).
Apply this principle to the problem: When an asset or liability is initially recorded, the asset is debited (to show an increase in resources), and the liability is credited (to show an increase in obligations).
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