What is the rule for recording the change in the expenses of the organisation?

Increase in expenses is debited, and decrease in expenses is credited

The correct answer is option 2- Increase in expenses is debited, and decrease in expenses is credited.

The rule for recording the change in the expenses of the organisation is Increase in expenses is debited, and decrease in expenses is credited. It implies that if the expense is increased then it will be recorded on the debit side of the account and if the expense decreased, it will record on credit side of the account.

All accounts are divided into five categories for the purposes of recording the transactions: (a) Asset (b) Liability (c) Capital (d) Expenses/Losses, and (e) Revenues/Gains.

Two fundamental rules are followed to record the changes in these accounts:

(1) For recording changes in Assets/Expenses (Losses):

• (i) “Increase in asset is debited, and decrease in asset is credited.”
• (ii) “Increase in expenses/losses is debited, and decrease in expenses/ losses is credited.”

(2) For recording changes in Liabilities and Capital/Revenues (Gains):

• (i) “Increase in liabilities is credited and decrease in liabilities is debited.”
• (ii) “Increase in capital is credited and decrease in capital is debited.”
• (iii) “Increase in revenue/gain is credited and decrease in revenue/gain is debited.”