Which of the following statements is true regarding debits and credits?
A) On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.
B) Before adjustments, debits will not equal credits in the trial balance.
C) The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities.
D) On the income statement, revenues are increased by debit whereas on the statement of financial position retained earnings is increased by a credit.

Question

Quizplus · Accepted Answer

The rules for debit and credit and the normal balance of Share Capital-Ordinary are the same as for liabilities. This means that Share Capital-Ordinary has a credit normal balance and is increased by credits, just like liabilities. The other statements are incorrect. On the income statement, revenues are increased by credit, not debit (option D). Before adjustments, debits and credits must always be equal in the trial balance, that's the whole point of the trial balance (option B). Option A is confusing, as it conflates the idea of increasing/decreasing account balances with the use of debits and credits. Both the income statement and statement of financial position use debits and credits, but they do so to reflect different types of transactions.

Which of the Following Statements Is True Regarding Debits and Credits