State BPA Fundamental Accounting Practice Exam

In accounting terms, a debit entry to expenses indicates what?

1. A decrease in expenses

2. An increase in expenses

3. A transfer of expenses to equity

4. A decrease in assets

The correct answer is: An increase in expenses

A debit entry to expenses reflects an increase in expenses within the accounting records. In accounting, the debit side of a transaction typically represents an addition to the account. Since expenses are recorded as debits, when you debit an expense account, you are acknowledging that expenses have risen. This aligns with the fundamental accounting principle that expenses reduce net income, and therefore, an increase in expenses is recorded as a debit to accurately reflect the financial performance of the business. Understanding that expenses increase with a debit helps in grasping how financial statements are constructed, particularly in how they affect the income statement and ultimately the equity of the company.