When creating a personal balance sheet, which of the following statements about debits and credits is correct?

• A. Both assets and liabilities are increased by debits.
• B. Both assets and liabilities are increased by credits.
• C. Assets are increased by credits and liabilities are increased by debits.
• D. Assets are increased by debits and liabilities are increased by credits.

Answer: (D)

Verified step by step guidance

1. Understand the concept of debits and credits: In accounting, debits and credits are used to record transactions in the ledger. Debits generally increase asset accounts and expense accounts, while credits generally increase liability accounts, equity accounts, and revenue accounts.
2. Analyze the relationship between assets and debits: Assets are resources owned by an individual or entity. When an asset account is debited, it increases the value of the asset, reflecting an addition to the resources.
3. Analyze the relationship between liabilities and credits: Liabilities represent obligations or debts owed by an individual or entity. When a liability account is credited, it increases the value of the liability, reflecting an addition to the obligations.
4. Compare the options provided in the problem: Evaluate each statement based on the rules of debits and credits. For example, the statement 'Assets are increased by debits and liabilities are increased by credits' aligns with the fundamental accounting principles.
5. Conclude the correct statement: Based on the analysis, the correct statement is 'Assets are increased by debits and liabilities are increased by credits,' as this reflects the proper application of debits and credits in accounting.