State BPA Fundamental Accounting Practice Exam

If a liability account receives a debit, what happens to its balance?

1. It remains unchanged

2. It increases

3. It decreases

4. It resets

The correct answer is: It decreases

In accounting, the treatment of debits and credits varies based on the type of account involved. For liability accounts, a debit entry reduces the balance. This is because liability accounts, such as loans or payable accounts, have a normal credit balance. When a debit is applied to a liability account, it signifies a decrease in the amount owed. This treatment aligns with the fundamental principle that debits reduce liability and equity accounts, while they increase asset accounts. As a result, when a liability account receives a debit, its balance decreases, reflecting either a payment made towards that liability or a reduction in the obligation.