SAP Business One Certification Practice Exam

Are Assets, Expenses, and Drawings accounts generally in credit or debit?

1. Credit

2. Debit

3. Neither

4. Both

The correct answer is: Debit

Assets, Expenses, and Drawings accounts are fundamentally classified as debit accounts in accounting. This classification is rooted in the basic principles of double-entry bookkeeping, where debits and credits reflect increases and decreases in accounts. For asset accounts, a debit entry signifies an increase in resources a business owns, such as cash, inventory, or equipment. Conversely, a credit entry would indicate a decrease in those assets. Expense accounts track costs incurred by a business to generate revenue. When an expense is recorded, it is entered as a debit, reflecting that the company is allocating funds toward operational costs. Drawings, which refer to the withdrawals made by business owners or partners for personal use, also fall under the debit category. This is because when owners withdraw money from the business, it reduces the equity in the business, necessitating a debit entry to reflect that outflow. In summary, the underlying concept is that both assets and expenses fundamentally contribute to the increase of the overall value to the business, which is why they are typically recorded in debit.