State BPA Fundamental Accounting Practice Exam

What happens to the balance of an asset account when a credit is recorded?

1. It increases

2. It decreases

3. It stays the same

4. It depends on the asset

The correct answer is: It decreases

In accounting, asset accounts typically have a normal debit balance, which means that they increase with debits and decrease with credits. When a credit is recorded in an asset account, it results in a decrease in that account's balance. This is fundamental to the double-entry accounting system, where every transaction affects at least two accounts, maintaining the accounting equation's balance. For example, if you were to credit cash to reflect a payment or expense, the cash account—which is an asset—would decrease because you are showing that less cash is available. Understanding this relationship between debits and credits is crucial for accurate financial reporting and maintaining the integrity of financial statements. Thus, when a credit is recorded in an asset account, the balance indeed decreases.