State BPA Fundamental Accounting Practice Exam

What is true regarding debits in accounting?

1. Debits always increase an account

2. Debits can both increase and decrease an account

3. Debits always decrease an account

4. Debits are used only for asset accounts

The correct answer is: Debits can both increase and decrease an account

In accounting, debits are entries made on the left side of a ledger account and can indeed both increase and decrease an account, depending on the type of account being affected. For asset accounts, a debit entry generally increases the balance. In contrast, for liability or equity accounts, a debit entry decreases the balance. For example, when cash (an asset) is received, it is recorded as a debit, increasing the asset balance. Conversely, when a company pays off a liability, that liability account is debited to decrease its balance. This dual nature of debits allows for flexibility in recording transactions across different types of accounts, including assets, liabilities, equity, revenues, and expenses. Understanding this perspective is essential to accurately managing and reporting financial information.