Future Business Leaders of America (FBLA) Accounting Practice Test

In accounting, what is a 'Debit' primarily associated with?

1. Increasing revenues

2. Increasing liabilities

3. Increasing assets or expenses

4. Decreasing equity

The correct answer is: Increasing assets or expenses

In accounting, a 'Debit' is primarily associated with increasing assets or expenses. When a company incurs an expense, it records this as a debit in the accounts, signaling an increase in expenses. Similarly, when a business acquires assets, such as equipment or inventory, these transactions are also recorded as debits, indicating that the value of the company's assets has risen. This aligns with the fundamental accounting equation (Assets = Liabilities + Equity), where debits increase assets on the left side of the equation. Understanding this concept is crucial for interpreting financial transactions and maintaining accurate financial records. It reinforces the double-entry accounting system, where every transaction involves a debit and a corresponding credit, ensuring that the accounting equation remains balanced. Thus, recognizing that a debit increases either assets or expenses is a key principle in accounting practices.