Under double-entry accounting, which side increases liability, revenue, and equity accounts?

• A. Credits
• B. Debits
• C. Cash basis
• D. Journalizing

Answer: (A)

In double-entry accounting, every transaction has two sides: debits and credits. The effect on different types of accounts depends on the kind of account. Credits increase liability accounts, increase revenue accounts, and increase equity accounts. Debits, conversely, increase asset and expense accounts and decrease liability and equity accounts. So the side that increases those three kinds of accounts is the credit side. For example, earning revenue is recorded with a credit to the revenue account (which increases equity through retained earnings), and taking on a liability is recorded with a credit to the liability account. Debits and credits must balance, and other terms like cash basis or journalizing describe methods or processes rather than which side increases these accounts.