Debit and Credit
In bookkeeping, credits and debits are used to monitor changes of values of accounts. It is essential to understand the concept debit and credit in order to have a better understanding of balance sheets and bookkeeping. Under double entry bookkeeping system, every transaction is registered in two accounts. The amount entered in the left side of the account is a debit entry and the amount entered in the right side of the account is a credit entry.
Debit and Credit Entry
In a business, the transactions made always have a fiscal impact on the financial statements of the company.
- When we make a debit entry, it either increases an expense or asset account or decreases an equity or a liability account.
- When we make a credit entry, it either increases an equity or a liability account or decreases an expense or asset account.
An Easy Way to Remember
Many feel confused between the usage of these two concepts. Trust me, it is not that difficult. Let’s make it simple! You have to debit all assets, expenses and losses and all receivers. And you have to credit all incomes and gains, liabilities and givers. Isn’t this an easy way to remember?
Lastly, it is very important to remember that the total amount of credits should be equal to that of debits in a transaction. If not, the transaction would be called off as unbalanced and will not be accepted.
This can be apply to big companies but also to yourself. If you’re not familiar with this kind of terms maybe you should use it with your own finances. We use debit and credit every day without even notice especially when we get paid and you spend it all by the weekend and then try to explain yourself what happened with your salary. Actually is really good idea to make a excel sheet and keep your money records.
Debit and credit have now been clarified once and for all! I thought of credit and debit in terms of my own bank balance and never in terms of book-keeping requirements. Now it will be easier to keep my own bank balances and expenditures in check with these simple and easy to remember terms.
Debit = ELR
Credit = GLG
🙂