State BPA Fundamental Accounting Practice Exam

True or False: A debit increases an asset account's balance while a credit decreases it.

1. True

2. False

3. Only true for liabilities

4. Depends on the account

The correct answer is: True

The statement is true because, in accounting, the double-entry system dictates that debits and credits have specific effects on different types of accounts. When it comes to asset accounts, a debit indeed increases the balance. This means that when you record a debit entry to an asset account, you are adding value to that account, reflecting an increase in resources owned by the entity. Conversely, crediting an asset account reduces its balance, meaning that the entity has either sold an asset, used it up, or otherwise decreased its resources. This foundational rule applies universally to asset accounts, making the statement accurate in the context of standard accounting practices. Understanding this relationship is crucial for accurately managing and analyzing financial statements, as it reflects how transactions affect an entity's economic resources.