How are expenses typically recorded in the accounting system using debits and credits?

• A. Expenses are recorded only when cash is received.
• B. Expenses are increased with a credit entry.
• C. Expenses are increased with a debit entry.
• D. Expenses are decreased with a debit entry.

Answer: (C)

Verified step by step guidance

1. Understand the basic principle of debits and credits: In accounting, debits and credits are used to record transactions. Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.
2. Recognize the nature of expense accounts: Expense accounts represent costs incurred by a business during its operations. These accounts are part of the income statement and reduce net income.
3. Learn how expenses are recorded: Expenses are increased with a debit entry because they reduce equity (retained earnings) and are part of the normal balance of expense accounts, which is a debit balance.
4. Understand the timing of expense recognition: Expenses are recorded when incurred, not when cash is received or paid, following the accrual basis of accounting. This ensures that expenses match revenues in the same period (matching principle).
5. Review incorrect statements: Expenses are not increased with a credit entry, nor are they decreased with a debit entry. These statements contradict the fundamental rules of debits and credits in accounting.