Multiple Choice
In double-entry accounting, an account is said to have a debit balance if which of the following is true?
2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In a journal entry, what is the effect of recording a credit to a liability account?
A
It decreases the liability account balance.
B
It increases the asset account balance.
C
It increases the liability account balance.
D
It decreases the equity account balance.
Verified step by step guidance1
Understand the basic accounting equation: \(\text{Assets} = \text{Liabilities} + \text{Equity}\). This equation must always remain balanced.
Recall that liabilities are accounts that represent what the company owes to others, and they normally have a credit balance.
In double-entry accounting, a credit to a liability account increases its balance, while a debit decreases it.
Therefore, recording a credit to a liability account means you are increasing the amount the company owes, which increases the liability balance.
This action does not directly affect asset or equity accounts; it specifically increases the liability side of the accounting equation.
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