Which statement correctly describes the normal balance of accounts?

The correct answer is rooted in the fundamental principles of accounting and the double-entry bookkeeping system, which establishes the normal balance for various types of accounts.

In accounting, each category of accounts—assets, liabilities, and equity—has a normal balance type that reflects how it behaves during transactions:

• Asset accounts increase when debited and have a normal balance of debit. Therefore, when you increase an asset account, you do so by debiting it.

• Liability accounts, on the other hand, have a normal balance of credit. This means they increase when credited and decrease when debited.

• Equity accounts also normally carry a credit balance, increasing with credits and decreasing with debits.

Looking specifically at the statement in the correct option: it indicates that assets increase with debits, which is accurate and reflects their normal balance. It also correctly states that liabilities and equity decrease with credits, aligning with their normal credit balances. This means when a liability or an equity account is credited, it decreases, whereas when they are debited, they increase.

This understanding of normal balances is critical for recording transactions accurately and maintaining balanced accounts in the financial statements.