In which of the following types of accounts are decreases recorded by credits
- Owner’s capital
The correct answer is Drawings. As you know liabilities, owner’s capital and revenues all are items of credit nature. They increase when they are credited. However, as drawings are expenses, the balance of drownings account is decreased when its credited. It’s increased when the account is debited.
For further details about the nature of debits and credits, I suggest you read our article about “Debit always means” which states the true nature of debits, how it behaves and how it is increased or decreased.
Let me elaborate my answer even more:
Option A: Liabilities
Liabilities are credit in nature. We pass the following Journal entry when it increases:
Similarly, the following entry is passed when Liabilities decreases;
As you can see:
- Liabilities were increased when we credited it, and
- Were decreased when we debited it
Thus, Liabilities are not the right option.
Option B: Owner’s Capital
The same is the case with owner’s capital. It is credit in nature and is only increased when its credited (some capital is injected). It is decreased when the owner’s capital account is debited (means capital is withdrawn)
Option D: Revenue
Revenue account is credit by nature. You know a credit account is increased when we credit it. Thus this option is also not correct.
Option C: Drawings
Drawing is an expense account and is debit by nature. As you know:
- A debit account is increased when its debited, and
- A debit account is decreased when its credited.
Hence, the correct option is Drawing.
A decrease is recorded in “Drawing” when its credited. All other options i.e. Liabilities, owner’s capital and revenues are increased when a credit is recorded.