State BPA Fundamental Accounting Practice Exam

To decrease an asset, what type of entry should be recorded?

1. Left side

2. Right side

3. Memo entry

4. No entry needed

The correct answer is: Right side

To decrease an asset, a right-side entry should be recorded. In accounting, the double-entry system is utilized where each transaction affects at least two accounts, following the accounting equation where assets are on the left side (debit side) and liabilities and equity are on the right side (credit side). When an asset decreases, it is reflected as a credit entry, which is recorded on the right side. This aligns with the fundamental principle that debiting an asset increases its value while crediting it decreases its value. For example, if a company sells a piece of equipment, the asset account would decrease, necessitating a credit entry to reflect that reduction. Understanding this entry system is crucial for accurate record-keeping and financial reporting, as it helps maintain the balance in the accounting equation. In contrast, the other options do not align with how asset accounts are adjusted: a left-side entry represents an increase, a memo entry does not affect the balances of accounts, and asserting that no entry is needed could lead to misrepresentation of the asset’s value on the balance sheet.