Skip to content

CSEET · Fundamentals of Accounting · Accounting Process

Under the modern (accounting equation) approach to debit and credit, which of the following rules is correct?

A decrease in capital is debited. Capital is an equity item on the right side of the accounting equation, so increases are credited and decreases are debited. Increases in liabilities are credited and increases in assets are debited, so the other rules stated are wrong.

  1. ADebit an increase in liabilities
  2. BCredit an increase in assets
  3. CDebit a decrease in capitalCorrect
  4. DCredit a decrease in expenses

Explanation

Capital is on the equity side, so an increase is credited and a decrease is debited. Increases in liabilities are credited, increases in assets are debited, and a decrease in an expense is a credit only when it is a reduction, not an increase in the expense; the option listing it is not a standard rule for recording expenses. Hence only the decrease in capital being debited is correct.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Process shows your real accuracy, how long you take and where you lose marks.

Practise Accounting ProcessFree diagnostic mock

More Accounting Process questions