SAP Business One Certification Practice Exam

Do credit transactions always increase the liability?

1. Yes

2. No

3. Only for certain accounts

4. It depends on the context

The correct answer is: Yes

In accounting, credit transactions typically represent an increase in liabilities. When a company incurs a liability, it records a credit to the liability account, which indicates that the company owes more. For instance, if a company takes out a loan, it will credit its loan payable account, which increases the overall liability. This reflects the fundamental accounting principle that credits increase liability accounts. While the other options suggest circumstances that could make this principle seem flexible, the standard accounting practice maintains that credit transactions result in increased liabilities consistently. Therefore, the assertion that credit transactions always increase the liability aligns with established accounting principles. Understanding this foundational concept is crucial for accurate financial reporting and analysis in SAP Business One and broader accounting practices.