The correct answer is: A. Debit increases the capital account balance.
A capital account is a financial statement that records the changes in a company’s equity. Equity is the difference between a company’s assets and liabilities. The capital account is increased by contributions from shareholders, retained earnings, and net income. It is decreased by dividends paid to shareholders and losses.
Debits increase assets and liabilities, while credits increase liabilities and decrease assets. Therefore, debits cannot increase the capital account balance.
Fresh capital is money that is invested in a company by new or existing shareholders. It is recorded in the capital account and increases the company’s equity.
Net income is a company’s profit after taxes. It is recorded in the income statement and then transferred to the capital account. Net income increases the company’s equity.
Dividends are payments made by a company to its shareholders. They are recorded in the income statement and then transferred to the retained earnings account. Dividends decrease the company’s equity.