State BPA Fundamental Accounting Practice Exam

What is the result of a credit transaction on an expense account?

1. Increases the expense account

2. Decreases the expense account

3. Has no impact on the expense

4. It converts to a revenue account

The correct answer is: Decreases the expense account

A credit transaction on an expense account results in a decrease in that account. This is because, in accounting, expenses are recorded as a debit balance. When a credit is applied to an expense account, it effectively reduces the total amount of expenses reported. For example, if a business initially incurs an expense and then receives a refund or reduces its liability related to that expense, a credit is recorded to reflect the decrease. This credit would reduce the overall expense amount in the financial records, impacting the net income positively since expenses are subtracted from revenues to determine profit. Thus, the correct response accurately captures the effect of a credit on an expense account, which is to decrease it.