Question

A credit entry:

Answer 1

Answer: e. Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts.

Explanation:

Let's evaluate each of the options as follows:

a. Is always a decrease in an account - This is false because a credit entry increases liability, common stock and revenue accounts.

b. Is recorded on the left side of a T-account - Although in modern day accounting, the use of T-account has been relegated to the background. However, if entries are to be recorded using the T-account, all debits are posted to the left side while all credits are recorded on the right side of the account.

c. Increases asset and expense accounts, and decreases liability, common stock, and revenue accounts - It does not increase asset and expense accounts, rather it reduces them. The opposite applies to liability, common stock, and revenue accounts.

d. Is always an increase in an account - This is false.

Therefore, option e is correct because a credit entry reduces asset and expense accounts, and increases liability, common stock and revenue accounts.

Answer 2

Answer: e. Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts

Explanation: in accounting, credit entry decreases asset and expense accounts, and increases liability, common stock, and revenue accounts and is positioned to the right in an accounting entry. Credits have different impacts across several broad types of accounts, and these include:

Asset accounts - credit decreases the balance.

Liability accounts - A credit increases the balance.

Equity/common stock accounts - A credit increases the balance.

The reason for this is due to the underlying accounting equation upon which the entire structure of accounting transactions are built:

Assets = Liabilities + Equity

As a result, assets can only be had if they have been paid for with liabilities or equity and consequently, creation of a transaction with a debit and a credit usually increases an asset while also increasing a liability or equity account.