
Identify the option which is according to the rules of debit and credit for balance sheet accounts.

Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Justification for Incorrect answers:
Option a:
Increase in liability and owners’ equity accounts are recorded by credits. Hence, this is the incorrect answer.
Option b:
Decrease in liability accounts are recorded by debits. Hence, this is the incorrect answer.
Option c:
Increase in owners’ equity accounts are recorded by credits. Hence, this is the incorrect answer.
Justification for Correct answers:
When liability and owners’ accounts are decreased, they are recorded by debits. Hence, the option which is correct is Option d. Decreases in liability and owners’ equity accounts are recorded by debits.
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Chapter 3 Solutions
Financial Accounting
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