State BPA Fundamental Accounting Practice Exam

Which account type reduces when a debit is recorded?

1. Asset account

2. Liability account

3. Equity account

4. Revenue account

The correct answer is: Revenue account

In accounting, the treatment of debits and credits varies across different types of accounts. When discussing which account type reduces with a debit, it's essential to understand the normal balance of each account type. Revenue accounts typically have a normal credit balance. This means that when revenue is earned, it is recorded as a credit to the revenue account. Conversely, when a debit is recorded to a revenue account, it effectively decreases the revenue. This is because debits reduce accounts that usually have a credit balance. Therefore, when you debit a revenue account, you are acknowledging a reduction in the income earned, which ultimately affects the company's profitability. In contrast, asset accounts, which hold a normal debit balance, increase when a debit is recorded. Liability accounts and equity accounts also maintain typical credit balances and would increase with a credit entry, thus not aligning with the reduction described in the question. Understanding this principle is critical for correctly interpreting the effects of transactions on financial statements and for proper accounting practices.