Question

Which of the following statements about credits is true? A : Credits decrease both assets and liabilities. B : Credits increase both assets and liabilities. C : Credits decrease assets and increase liabilities. D : Credits increase assets and decrease liabilities.

Answer 1

Answer:

The correct answer is C. Credits decrease assets and increase liabilities.

Explanation:

A credit is a provision of money in the form of a loan, granted by a creditor (lender) to a debtor (borrower). For the creditor, the transaction gives rise to a claim on the borrower, under which he can obtain repayment of the funds and payment of remuneration (interest) according to a fixed schedule. For the borrower, whether it is a business or an individual, the credit establishes the existence of a debt (increasing liabilities) and opens the availability of a temporary financial resource.