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28 January, 23:34

Which of the following rules is incorrect?

a. Credits increase revenue accounts.

b. Debits increase the common stock account.

c. Debits decrease liability accounts.

d. Credits decrease the dividends account.

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  1. 28 January, 23:42
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    b. Debits increase the common stock account.

    d. Credits decrease the dividends account.

    Explanation:

    As per the general rule, the revenues are always credited, therefore a credit to revenue will increase the revenues.

    Common stock account always shows the credit balance, thus, whenever there is a debit to common stock account it will decrease the balance.

    Liability accounts also show a credit balance therefore, with every debit to liabilities account the liabilities will be decreased.

    Dividends are credited against retained earnings, and thus if they are credited even again then they tend to increase.

    Therefore, incorrect statements are:

    b. Debits increase the common stock account.

    d. Credits decrease the dividends account.
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