Increasing and Decreasing Liability with Modern Approach of Debit and Credit Rules
Increasing Liability:
Increasing liability will be recorded as a credit in the modern approach of rules of debit and credit. This means that when a liability increases, it will be credited in the accounting books.
Decreasing Liability:
Conversely, when a liability decreases, it will be recorded as a debit in the modern approach. This means that a decrease in liability will be debited in the accounting records.
Explanation:
In the modern approach of rules of debit and credit, liabilities are recorded based on the principle of double-entry accounting. This means that for every transaction, there is a debit entry and a corresponding credit entry. When a liability increases, it is credited to reflect the increase in the amount owed by the business. On the other hand, when a liability decreases, it is debited to show the reduction in the amount owed.
By following these rules, businesses can accurately track their liabilities and ensure that their financial statements are accurate and reliable. This approach helps in maintaining the balance in the accounting equation and provides a clear picture of the financial health of the business.