Which of the following statements is true regarding debits and credits?<\/p>\n\n\n\n
a. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.
b. The basic equation on the statement of financial position is Assets + Liabilities = Equity.
c. The rules for debit and credit and the normal balance of Share Capital \u2013 Ordinary are the same as for liabilities.
d. On the income statement, revenues are increased by debit whereas on the statement of financial position retained is increased by a credit.<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n The correct answer is:<\/p>\n\n\n\n c. The rules for debit and credit and the normal balance of Share Capital \u2013 Ordinary are the same as for liabilities.<\/strong><\/p>\n\n\n\n To understand why option c<\/strong> is correct, let’s break down each statement.<\/p>\n\n\n\n a. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.<\/strong><\/p>\n\n\n\n This statement is incorrect. On the income statement, revenues<\/strong> increase with credits<\/strong>, while expenses<\/strong> increase with debits<\/strong>. On the statement of financial position (balance sheet), assets<\/strong> increase with debits<\/strong>, while liabilities<\/strong> and equity<\/strong> increase with credits<\/strong>. Therefore, this statement misrepresents the rule for debits and credits.<\/p>\n\n\n\n b. The basic equation on the statement of financial position is Assets + Liabilities = Equity.<\/strong><\/p>\n\n\n\n This statement is incorrect. The correct accounting equation for the statement of financial position (balance sheet) is:<\/p>\n\n\n\n c. The rules for debit and credit and the normal balance of Share Capital \u2013 Ordinary are the same as for liabilities.<\/strong><\/p>\n\n\n\n This statement is true<\/strong>. Share Capital \u2013 Ordinary, which represents the equity portion of the balance sheet, follows the same rules for debits and credits as liabilities. Both liabilities and equity accounts are increased by credits<\/strong> and decreased by debits<\/strong>. Thus, Share Capital \u2013 Ordinary behaves similarly to liabilities in terms of debits and credits, and this makes the statement accurate.<\/p>\n\n\n\n d. On the income statement, revenues are increased by debit whereas on the statement of financial position retained is increased by a credit.<\/strong><\/p>\n\n\n\n This statement is incorrect. Revenues<\/strong> on the income statement are increased by credits<\/strong>, not debits. On the statement of financial position (balance sheet), retained earnings<\/strong> (a part of equity) is increased by credits<\/strong>, as well. Therefore, this statement is inaccurate in describing the treatment of revenues.<\/p>\n\n\n\n Thus, option c<\/strong> is the only true statement regarding debits and credits.<\/p>\n","protected":false},"excerpt":{"rendered":" Which of the following statements is true regarding debits and credits? a. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.b. The basic equation on the statement of financial position is Assets + Liabilities = Equity.c. The rules for […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-204502","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204502","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=204502"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204502\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=204502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=204502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=204502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation:<\/h3>\n\n\n\n
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This equation shows that a company’s assets are funded by its liabilities and equity, not the other way around.<\/li>\n<\/ul>\n\n\n\n