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Under the rules of debit and credit, when a business pays cash out, what happens to the Cash account?
ACash is debited because it increases
BCash is credited because it increases
CCash is debited because it decreases
DCash is credited because it decreases
Answer & Solution
Correct answer: D. Cash is credited because it decreases
1. Cash is an asset; paying it out makes the balance go down.
2. The rule states: credit Cash when you pay it out, because Cash decreases.
3. A debit to Cash records an increase, so options A and C are wrong.
4. Option D pairs a credit with an increase, which contradicts the rule.
5. Therefore Cash is credited because it decreases.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.3.2 "Rules of Debit and Credit", p.13_
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