The meaning of debit and credit

The correct use of debits and credits is extremely important when it comes to basic accounting practices. If your knowledge and skills to implement these elements are decent, then this is a great opportunity to advance in the field of accounting. Again, if you don’t understand these concepts well, you will find it very difficult to advance in an accounting career. So, as you can see, applying the techniques is very important, which is why I decided to explain them to increase your knowledge.

First of all, it is necessary to explain what is meant by debit and credit. Debits and credits are bookkeeping terms for accounts as every account we deal with has both a debit side and a credit side. These debits and credits are recorded in two separate columns, with the debit on the left and the credit on the right. When separated, the accounts can be added together and kept in orderly order. The main use of debits and credits is to change an account balance. Knowing which side of the account to put recent activity on is very important. So you need to remember which side is increasing and which is decreasing to keep your books up to date. It is also important for you to know debits and credits so that you can work quickly and efficiently, as well as keeping your accounts up to date so that you can also keep the business or your work on track.

Accountants will say things like, I added five hundred dollars as a debit to the cash balance. For all asset accounts like cash, they increase on the debit side of the account. So when you deposit money into the account, it will be put on the debit side in the general journal. On the other hand, if you spend cash to buy something, they will say credit the cash account as it reduces the total amount in the account. It is very important to keep up with the accounts and increase and decrease the totals on the correct side of the column so that you increase your total on the debit side and decrease your total on the credit side. asset accounts include cash; Claims, land or items of economic value owned by an individual or company, especially those that could be converted into cash. In the case of liabilities, they increase on the credit side and even decrease on the debit side of the account. Payables can include trade payables, tax payables, unearned income and bills payable. The actual definition is a liability assumed by a business entity as a result of its borrowing or other tax obligations. The final part of the balance sheet equation is equity, which shows equal increases (on the credit side) and decreases (obviously on the debit side). Owner’s equity is the owner’s rights to the company’s assets; It includes the accounts for capital and subscription (also known as personal account, money used for personal purposes). Owner equity also includes the income statement, which houses all income and expense accounts. Income increases on the credit side and decreases on the debit side. The expense accounts are the opposite of the income accounts to which they are added on the debit side and taken out on the credit side of the account. As an example of using debit and credit accounting, suppose you borrow cash for a loan from the local bank. To put it on your books, you would increase the cash on the debit side because you are adding it to the total, and also add it to the credit side of the loan payable as a liability. If you do something with a direct debit, you must also do something with a credit account. Therefore, when posting cash, you also had to do something with a credit, which is why you add a loan under liabilities. This was a very simple example, but it shows you how debit and credit entries are used in early accounting journals.

As you have already read, debits and credits are very important as a basic accounting principle. Using debits and credits correctly is the most basic form of accounting in bookkeeping, without it you can’t do much more. You need to know these before anything else you do in accounting, without them you cannot do any other form of accounting in the field of accounting. I hope this article has helped you with the basic use of debit and credit accounting.

By: Bill McDougall