Which statement best explains what it means to use credit in accounting?

• A. To transfer funds from one bank account to another.
• B. To recognize cash received from customers.
• C. To record an increase in a liability, equity, or revenue account, or a decrease in an asset or expense account.
• D. To record an increase in an asset or expense account, or a decrease in a liability, equity, or revenue account.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of 'credit' in accounting. In double-entry bookkeeping, every transaction involves both a debit and a credit. A credit is used to record changes in specific accounts based on the type of account being affected.
2. Step 2: Learn the impact of credit on different types of accounts. Credits increase liability, equity, and revenue accounts, while they decrease asset and expense accounts. This is a fundamental rule in accounting.
3. Step 3: Compare the options provided in the problem. Analyze each statement to determine which aligns with the definition of credit in accounting.
4. Step 4: Eliminate incorrect options. For example, transferring funds between bank accounts or recognizing cash received from customers does not directly define the use of credit in accounting.
5. Step 5: Select the correct answer based on the definition of credit. The correct statement is: 'To record an increase in a liability, equity, or revenue account, or a decrease in an asset or expense account.' This matches the accounting principle for credit usage.