Which statement expresses the basic accounting equation and how debits and credits affect its components?

• A. Assets = Liabilities + Equity; Debits increase assets and decrease liabilities/equity; Credits decrease assets and increase liabilities/equity.
• B. Assets = Liabilities - Equity; Debits increase assets; Credits increase liabilities.
• C. Assets + Liabilities = Equity; Debits increase equity; Credits decrease equity.
• D. Cash = Revenue - Expenses; Debits increase revenue; Credits increase expenses.

Answer: (A)

The basic idea is the accounting equation: assets must equal liabilities plus equity. In double-entry bookkeeping, every transaction uses debits and credits to keep that balance, moving value between accounts according to their normal balances. Debits increase asset accounts and decrease liability or equity accounts; credits do the opposite, decreasing assets and increasing liabilities or equity. This pattern keeps the equation in balance with each entry.

So the statement is correct because it cleanly captures both parts: in assets, a debit raises the balance while a credit lowers it; in liabilities and equity, a debit lowers the balance and a credit raises it. A simple example helps: if you obtain equipment by taking out a loan, you debit the equipment (asset increases) and credit the loan payable (liability increases). The total on the asset side grows and the liability side grows by the same amount, preserving balance.