Question

A credit decreases the balance of which types of accounts?

a) Assets and shareholders' equity
b) Expenses and assets
c) Assets and liabilities
d) Liabilities and expenses

Answer 1

A credit decreases the balance of liabilities and shareholders' equity accounts in a business setting.

Step-by-step explanation:

A credit decreases the balance of liabilities and shareholders' equity accounts but increases the balance of assets. Specifically, a credit entry will reduce the balance of asset accounts like cash or equipment and increase the liabilities or shareholders' equity, depending on the account it is posted to. For example, when a company issues a credit note to a customer, it will credit the sales account, reducing the shareholders' equity. If a supplier's invoice is paid, the bank account (asset) is credited, reducing the balance of the company's cash on hand. However, it's important to remember that for personal finances, the interpretation can be different from that of a business such as a bank.