In double-entry accounting, which statement is true?

• A. Debits increase liabilities; credits increase assets.
• B. Debits increase assets and expenses; credits increase liabilities, equity, and revenues, and decrease assets and expenses.
• C. Debits increase revenues; credits increase expenses.
• D. Debits decrease assets and revenues; credits decrease liabilities and expenses.

Answer: (B)

In double-entry accounting, every transaction affects at least two accounts and uses the normal balances of those accounts. Assets and expenses have a normal debit balance, while liabilities, equity, and revenues have a normal credit balance. Debits increase the accounts that normally carry a debit balance (assets and expenses) and decrease the others, whereas credits increase the accounts with a credit balance (liabilities, equity, revenues) and decrease the others. This framework keeps the accounting equation balanced.

The described rule—debits increasing assets and expenses; credits increasing liabilities, equity, and revenues, and decreasing assets and expenses—matches how these accounts actually behave. For example, buying equipment with cash increases the asset Equipment (a debit) and decreases the asset Cash (a credit), illustrating how the same type of transaction can affect multiple accounts consistently. Earning revenue on credit increases Accounts Receivable (an asset) and Revenue (which increases equity via retained earnings), again following the same principle.

Other options misstate how debits and credits interact with account types. The key idea is the alignment with normal balances: debits boost assets and expenses and reduce liabilities, equity, and revenues; credits boost liabilities, equity, and revenues and reduce assets and expenses.