What effect does a credit entry have on an expense account?

What effect does a credit entry have on an expense account?

• A. Increases the expense
• B. Decreases the expense
• C. No effect
• D. Transfers the expense

Answer: (B)

A credit entry in an expense account decreases the expense. In accounting, expenses typically have a normal debit balance, meaning that increases to expense accounts are recorded with debit entries. Therefore, when a credit entry is made, it effectively reduces the balance of the expense account. This principle is part of the double-entry accounting system, where every transaction affects at least two accounts. Since expenses reduce equity (the net income when expenses are deducted from revenues), crediting an expense account will lower the total expenses recorded. Consequently, this can lead to an increase in net income, reflecting fewer expenses on the income statement. In contrast, increasing an expense account would require a debit entry. Therefore, understanding the impact of credit entries on expense accounts is essential for accurate financial reporting and accounting practices.

A credit entry in an expense account decreases the expense. In accounting, expenses typically have a normal debit balance, meaning that increases to expense accounts are recorded with debit entries. Therefore, when a credit entry is made, it effectively reduces the balance of the expense account.

This principle is part of the double-entry accounting system, where every transaction affects at least two accounts. Since expenses reduce equity (the net income when expenses are deducted from revenues), crediting an expense account will lower the total expenses recorded. Consequently, this can lead to an increase in net income, reflecting fewer expenses on the income statement.

In contrast, increasing an expense account would require a debit entry. Therefore, understanding the impact of credit entries on expense accounts is essential for accurate financial reporting and accounting practices.