Multiple Choice
The purchase of raw materials on account in a process costing system is recorded with a:
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Expenses follow the same debit and credit rules as which of the following accounts?
A
Owner's Equity
B
Liabilities
C
Assets
D
Revenues
Verified step by step guidance1
Understand the nature of expenses: Expenses are costs incurred by a business in the process of earning revenue. They reduce the owner's equity because they decrease the net income of the business.
Recall the debit and credit rules: Assets increase with a debit and decrease with a credit. Similarly, expenses increase with a debit and decrease with a credit, as they are treated as reductions to equity.
Compare expenses to the other account types: Liabilities and revenues increase with a credit and decrease with a debit, which is the opposite of how expenses behave. Owner's equity also increases with a credit, so it does not follow the same rules as expenses.
Identify the correct match: Since expenses increase with a debit and decrease with a credit, they follow the same rules as assets, which also increase with a debit and decrease with a credit.
Conclude the reasoning: The correct answer is 'Assets' because both expenses and assets share the same debit and credit behavior in accounting.
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