What is a credit in double-entry accounting?

In double-entry accounting, a credit serves a dual purpose that aligns with the fundamental principles of the accounting equation, which states that assets equal liabilities plus equity. Specifically, a credit increases liabilities and can also decrease expenses.

When a credit entry is made to a liability account, it signifies that the company has taken on more obligations, such as increasing accounts payable or loans. This reflects a growth in what the business owes to others, thus aligning with the notion that credits increase liabilities.

Simultaneously, when expenses are recorded as credits, it decreases the overall amount reflected in the expense account. This is significant because expenses are recorded as debits in the accounting system, so a credit would effectively reduce the total expenses recognized in that period.

Given that option D encapsulates both the increase in liabilities and the decrease in expenses as functions of credit entries, it accurately captures the dual nature of credits within the framework of double-entry accounting.