In accounting, the terms debit (Dr.) and credit (Cr.) refer to the two sides of an account in the double-entry accounting system.
Definition of Debit and Credit in Accounting:
Every financial transaction affects at least two accounts in a double-entry system: one account is debited, and another is credited.
Debits (Dr.) appear on the left side, while credits (Cr.) appear on the right side of an account.
Accounting Equation:
Step-by-Step Justification:Assets=Liabilities+Equity\text{Assets} = \text{Liabilities} + \text{Equity}Assets=Liabilities+Equity
Debits increase assets and expenses.
Credits increase liabilities, equity, and revenues.
Why the Other Options Are Incorrect:
A. Debit indicates the right side of an account and credit the left side ❌
Incorrect, as debits are always recorded on the left side, and credits are always on the right side.
B. Debit means an increase in an account and credit means a decrease. ❌
Partially incorrect; it depends on the type of account:
For assets and expenses, debits increase and credits decrease.
For liabilities, equity, and revenues, credits increase and debits decrease.
D. Credit means an increase in an account and debit means a decrease. ❌
Also incorrect because increases and decreases depend on the type of account (e.g., debits increase assets but decrease liabilities).
IIA Standard 1210.A1: Internal auditors must be familiar with fundamental accounting principles.
IIA Practice Guide: Auditing Financial Statements: Ensures proper understanding of debits and credits in financial reporting.
GAAP & IFRS Accounting Standards: Define how debits and credits are recorded in financial statements.
IIA References:Thus, the correct answer is C. Credit indicates the right side of an account and debit the left side. ✅
