At the time of admission of a new partner, the accountant credited an increase in liability of ₹34,000 to the Revaluation Account. Why is this an accounting error?

Correct answer: An increase in liability is a loss, so it should be debited to the Revaluation Account

An increase in a liability creates an additional financial burden for the firm, so it represents a revaluation loss. Losses are debited and gains are credited to the Revaluation Account; therefore, crediting ₹34,000 is incorrect and the amount should be debited. Exam tip: An increase in an asset or decrease in a liability is a gain, while a decrease in an asset or increase in a liability is a loss.