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Question

If a transaction has the effect of decreasing an asset, is the decrease recorded as a debit or as a credit? If the transaction has the effect of decreasing a liability, is the decrease recorded as a debit or as a credit?


Solution

When a transaction has the effect of decreasing an asset, the decrease will be recorded on the credit side because the balance of all the assets is debit. For example, when an asset is decreased because of depreciation, in that case, depreciation is recorded on the debit side of the assets in the journal.

On the other hand, when the transaction has the effect of decreasing a liability, the decrease will be recorded on the debit side because the balance of all the liabilities are credit. For example, when capital is decreased because of the withdrawal by the proprietor, drawings account is debited.

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