Income and Expenses Affect the Profits Made by an Entity

question 22

Multiple Choice

Income and expenses affect the profits made by an entity. Which of the following statements best describes how this fact is consistent with the accounting equation and the debit and credit rule?

• A) Income increases equity and so should be a debit and expenses decrease equity and so should be a credit.
• B) Income increases equity and so should be a credit and expenses decrease equity and so should be a debit.
• C) Income decreases equity and so should be a debit and expenses increase equity and so should be a credit.
• D) Income and expenses both affect equity and so both should be a credit if they are increasing.

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Definitions:

Nonsense Syllables

Meaningless sets of letters used in psychological experiments to study memory and learning processes.

Hermann Ebbinghaus

A German psychologist best known for his pioneering work on the study of memory, including the forgetting curve and the spacing effect.

Ebbinghaus' Retention Curve

A graphical representation of the decline in memory retention over time, illustrating that memories diminish if not rehearsed.

Chunking

A strategy for making more efficient use of short-term memory by grouping information into larger units.