In the context of journal entries, which of the following best describes a credit?

• A. An entry that increases a liability or equity account, or decreases an asset account
• B. An entry that decreases both liability and equity accounts
• C. An entry that always increases an asset account
• D. An entry that is only used for recording cash transactions

Answer: (A)

Verified step by step guidance

1. Understand the concept of a credit in accounting: A credit is one side of a journal entry that affects accounts in the ledger. It can either increase or decrease an account depending on the type of account being affected.
2. Recall the accounting equation: Assets = Liabilities + Equity. This equation helps determine how credits and debits affect different accounts.
3. Analyze the impact of a credit on different account types: Credits increase liability and equity accounts, while they decrease asset accounts. This is a fundamental rule in double-entry accounting.
4. Eliminate incorrect options: For example, a credit does not always increase an asset account, nor is it only used for recording cash transactions. These statements are inconsistent with the rules of accounting.
5. Select the correct description: Based on the rules of accounting, the correct description of a credit is 'An entry that increases a liability or equity account, or decreases an asset account.'