Future Business Leaders of America (FBLA) Accounting Practice Test

What is recorded on the right side of a T Account?

1. Asset

2. Debit

3. Credit

4. Revenue

The correct answer is: Credit

In accounting, a T account is a visual representation of individual accounts, which helps in recording and analyzing transactions. The right side of a T account is designated for credits. When a transaction occurs, it can either increase or decrease an account, and the side it is recorded on determines the effect on the account's balance. Credits are used to increase liabilities, equity, and revenue accounts, while they decrease assets and expenses. For instance, if a business receives cash from a loan, the cash account (an asset) is increased with a debit on the left side, while the loan payable account (a liability) is increased with a credit on the right side. This dual entry maintains the accounting equation’s balance, ensuring that assets always equal liabilities plus equity. Understanding the function of credits in T accounts is crucial, as they reflect how different types of accounts respond to financial transactions. This knowledge is foundational to double-entry bookkeeping, where every financial transaction impacts at least two accounts and must be recorded accurately to ensure proper financial reporting and analysis.