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Why is it to debit an asset "good," but to debit revenue "bad"?

a. Assets represent ownership
b. Debiting revenue reduces profits
c. Debiting assets increases value
d. Both b and c

1 Answer

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Final answer:

Debiting an asset increases its value or adds a new asset, which is good for the company. Debiting revenue implies a decrease in revenue, lowering the profits, which is undesirable.

Step-by-step explanation:

The question concerns the accounting treatment of assets and revenue in the context of debits and credits. To address this question, one must understand the double-entry bookkeeping system used in accounting. When an asset is debited, it means the value of the asset is increasing or a new asset is being acquired, which is typically viewed as beneficial for the company. This is because assets represent ownership and resources that the company can use to generate income. On the other hand, debiting revenue is often seen as negative because it means revenue is being reduced, which directly impacts the net income negatively. Therefore, the correct answer to why it is good to debit an asset but bad to debit revenue is 'Both b and c'.

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