Final answer:
A credit to an account in double-entry bookkeeping signifies a decrease in a capital account or an increase in a liability account. Using a T-account helps illustrate that credits decrease asset and capital accounts while increasing liability accounts for a firm.
Step-by-step explanation:
Under the principle of double-entry bookkeeping, a credit to an account can signify various things depending on the type of account it's applied to. In general, credits can mean a decrease in asset accounts and an increase in liability or revenue accounts. Specifically, the correct answer among the provided options is:
- A. An increase in an asset account - Incorrect, because credits actually decrease asset accounts.
- B. A decrease in a capital account - Correct, credits decrease owner's equity or capital accounts.
- C. A decrease in a liability account - Incorrect, credits increase liability accounts.
- D. An increase in a liability account - Also correct, as mentioned above, credits increase liability accounts.
Using a T-account as a reference, one can better understand this concept. The T-account separates assets (on the left) from liabilities and net worth (on the right). For a bank, the assets might include cash reserves and loans given out, while liabilities would consist of customer deposits and any debts. Net worth is also counted on the liabilities side, as it's the total assets minus total liabilities. This is designed to make the T-account balance to zero.