Question

Would a debit and credit increase or decrease the following account balances?

a. Prepaid Insurance
b. Interest Revenue
c. Long-Term Debt

Answer 1

A rise in supply of money in the financial market typically leads to lower interest rates and can also increase the quantity of loans made. Conversely, a fall in demand can decrease interest rates but may not necessarily affect the quantity of loans as significantly.

Step-by-step explanation:

When dealing with changes in financial market conditions, different factors can affect interest rates and the quantity of loans. If there is a rise in supply of money in the financial market, this generally leads to a decline in interest rates because more funds are available for lending, and lenders may lower rates to attract borrowers. Conversely, a fall in demand for loans might also lead to lowered interest rates as lenders compete for fewer borrowers.

Regarding an increase in the quantity of loans made and received, both a rise in supply of loanable funds and a rise in demand for those funds can contribute. A rise in supply, with more funds available to lend, can lead to more loans being made. Meanwhile, a rise in demand indicates that more borrowers are seeking loans, which could also increase the quantity of loans, assuming lenders are willing to meet this demand.

Answer 2

Debit and credit transactions can increase or decrease the balances of specific accounts. Prepaid insurance is increased with a debit transaction and decreased with a credit transaction. Interest revenue decreases with a debit and increases with a credit. Long-term debt decreases with a debit and increases with a credit.

Step-by-step explanation:

Debit and credit transactions can either increase or decrease the balances of certain accounts.

For prepaid insurance, a debit transaction would increase the balance, while a credit transaction would decrease it. When you pay for insurance in advance, you record it as a prepaid expense. A debit entry increases the prepaid insurance account, which represents the amount of insurance you have paid for but haven't used yet. When the insurance is used up, you record it as an expense and decrease the prepaid insurance account with a credit entry.

For interest revenue, a debit transaction would decrease the balance, while a credit transaction would increase it. Interest revenue is earned when a company lends money to others and receives interest payments in return. Any increase in interest revenue is recorded by making a credit entry, while a decrease is recorded with a debit entry.

For long-term debt, a debit transaction would decrease the balance, while a credit transaction would increase it. Long-term debt represents the amount of money a company owes that is due over a period of more than one year. When a company makes payments on its long-term debt, the balance decreases, which is recorded with a debit entry. Alternatively, when a company borrows more money, the balance increases, and this is recorded through a credit entry.