Question

Which of the following statements is TRUE of expenses?

a.Expenses increase equity, so an expense account's normal balance is a debit balance.
b.Expenses decrease equity, so an expense account's normal balance is a debit balance.
c.Expenses decrease equity, so an expense account's normal balance is a credit balance.
d.Expenses increase equity, so an expense account's normal balance is a credit balance.

Answer 1

The true statement about b. expenses is that they decrease equity, which results in expense accounts having a normal debit balance.

Step-by-step explanation:

The correct statement about expenses is: b. Expenses decrease equity, so an expense account's normal balance is a debit balance. Expenses are the costs necessary to earn revenues and they reduce the net worth or equity of a company.

When recording expenses, the increase in the expense account is shown as a debit based on double-entry accounting principles. In a T-account, the assets are listed on the left side, while the liabilities and equity (including net worth) are on the right side. With the increase in expenses on the debit side, equity decreases.