State BPA Fundamental Accounting Practice Exam

What does a credit entry in an expense account imply?

1. It reduces expenses

2. It increases expenses

3. It has no effect on expenses

4. It transfers expenses to revenue

The correct answer is: It reduces expenses

A credit entry in an expense account implies that expenses are reduced. In accounting, the normal balance for expense accounts is a debit balance. When an expense account is credited, it decreases its overall balance, reflecting a reduction in total expenses for the period. This could happen, for example, if a previous expense was overestimated and needs to be adjusted downward. The other scenarios do not accurately describe the impact of a credit in an expense account. A credit entry would not increase expenses, have no effect, or transfer expenses to revenue, as those actions would contradict the fundamental principles of accounting associated with how expense accounts are structured and how they are affected by debits and credits. Understanding this principle is important for accurate financial reporting and analysis.