Increases in assets involve debits and increases to equity and liabilities involve credits under a ledger-based approach to recording transactions.

Question

Quizplus · Accepted Answer

This is because the accounting equation is Assets = Liabilities + Equity. Therefore, any increase in assets would need to be balanced out by an increase in either liabilities or equity, and since debits increase assets under double-entry accounting, the corresponding entry would need to be a credit. Conversely, increases to either liabilities or equity will need a debit to balance it out, and so these would be recorded as credits.

Increases in Assets Involve Debits and Increases to Equity and Liabilities