Final answer:
Debits and credits affect assets, liabilities, and permanent owner's equity accounts in a specific way, as per double-entry bookkeeping. Debits increase assets and decrease liabilities and equity, while credits do the opposite. A T-account represents these transactions with debits on the left and credits on the right to maintain the balance of the accounting equation.
Step-by-step explanation:
The effects of debits and credits on assets, liabilities, and permanent owner's equity accounts are fundamental to double-entry bookkeeping. The correct answer to how debits and credits affect these accounts is: a) Debits increase assets and decrease liabilities; credits increase liabilities and decrease assets. This is because in double-entry accounting, each financial transaction affects at least two accounts. If one account is debited, another one must be credited, and vice versa, to keep the accounting equation balanced.
On a T-account, the left side represents debits and the right side represents credits. An asset account increases on the debit side and decreases on the credit side. Conversely, a liability account increases on the credit side and decreases on the debit side. The permanent owner's equity, which is considered a liability for the company as it's an obligation to the owners, also increases on the credit side and decreases on the debit side. This structural approach helps ensure that the fundamental accounting equation of Assets = Liabilities + Owner's Equity is always in balance.
For example, if a company purchases a piece of equipment, it would debit its asset account for the equipment and credit its cash or bank account. If it takes out a loan, it would credit a liabilities account and debit the corresponding asset account, usually cash.