State BPA Fundamental Accounting Practice Exam

How does a credit affect a revenue account?

1. Decreases the revenue account

2. Increases the revenue account

3. No effect on the revenue account

4. Reverses the revenue account

The correct answer is: Increases the revenue account

A credit to a revenue account increases the balance in that account. In the accounting system, revenue accounts are typically classified as credit accounts, which means that increases in revenue are recorded with credits. Therefore, when a credit is made, it reflects an increase in the earnings of the business, indicating that the business has earned more income during that accounting period. This foundational understanding of double-entry bookkeeping highlights that for most accounts, particularly those in the revenue category, credit entries signify a positive change. In contrast, other accounts like expenses or assets function differently—debits are used to increase those accounts, while credits serve to decrease them. Recognizing the nature of how credits and debits interact within the accounting framework is essential for accurately tracking and reporting a business's financial standing.