Information about Debits And Credits
Debit and credit are formal bookkeeping and accounting terms that have opposite meanings and come from Latin. Debit comes from , which means "to owe". The Latin means "debt". Credit comes from the Latin word , which means "to believe".
It is more common to use the terms in the plural, Debits and Credits.
DEBIT is abbreviated as Dr., while credit is abbreviated as Cr.
"Debit" also refers to the left side of a general ledger account, while "Credit" refers to the right side. Due to the proliferation of bookkeeping and accounting computer software, it is now common for Debits to be mistakenly treated as positive values and Credits to be mistakenly treated as negative values. Positive and negative values allow for mathematical calculations in software programs. This has led to confusion as people do not understand why a sales amount is treated as a negative value, a credit; and an expense amount is treated as a positive value, a debit. If the value of the debits is greater than the value of the credits, then the balance on the account is a debit and should not be described as a positive value balance, but should be described as an account with a debit balance.
Debits and Credits are recorded in a T account as shown below
Debit entries are made on the left side of the vertical line and credit entries are made on on the right side of the vertical line.
Debits and credits are neither positive nor negative values. The balance on an account is either a debit or a credit, not a positive or a negative value.
Dividend, Expense, Asset and Losses (abbreviated as "D-E-A-L") accounts increase in value when debited and decrease when credited, whereas Gains, Income, Revenues, Liability and Stockholder's (Owner's) equity (abbreviated as "G-I-R-L-S") accounts decrease in value when debited and increase when credited.
This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales invoices, the company will have credited a certain amount in revenue, but the customer's ledger will hold a debit balance being the amount of the unpaid invoices. To fully understand this see Double-entry bookkeeping system where Debits and Credits form the core of that system.
For instance, the journal entry for paying the telephone bill might look like this:
The telephone company would record the exact same transaction (from their side) like this:
Confusion also arises where the term debit is also informally referred to as a "charge" as in a charge card or a debit card and that credit is a limit set or an amount granted by a company to its customers as in a credit limit. They are used in a different context in these two cases.
It is often assumed that a debit decreases a balance, and a credit increases it, because this is how the terms are shown on bank statements and using a debit card decreases the balance in one's bank account. However, this is because bank statements are traditionally written from the bank's perspective, where the customer's account is a liability. By withdrawing money, the customer is decreasing the bank's liability. Since liability accounts normally have a credit balance, the withdrawal of cash from a banking account is reflected on the bank's balance sheet as a debit.
It is more common to use the terms in the plural, Debits and Credits.
DEBIT is abbreviated as Dr., while credit is abbreviated as Cr.
"Debit" also refers to the left side of a general ledger account, while "Credit" refers to the right side. Due to the proliferation of bookkeeping and accounting computer software, it is now common for Debits to be mistakenly treated as positive values and Credits to be mistakenly treated as negative values. Positive and negative values allow for mathematical calculations in software programs. This has led to confusion as people do not understand why a sales amount is treated as a negative value, a credit; and an expense amount is treated as a positive value, a debit. If the value of the debits is greater than the value of the credits, then the balance on the account is a debit and should not be described as a positive value balance, but should be described as an account with a debit balance.
Debits and Credits are recorded in a T account as shown below
| Debits | Credits |
|---|---|
Debits and credits are neither positive nor negative values. The balance on an account is either a debit or a credit, not a positive or a negative value.
Dividend, Expense, Asset and Losses (abbreviated as "D-E-A-L") accounts increase in value when debited and decrease when credited, whereas Gains, Income, Revenues, Liability and Stockholder's (Owner's) equity (abbreviated as "G-I-R-L-S") accounts decrease in value when debited and increase when credited.
This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales invoices, the company will have credited a certain amount in revenue, but the customer's ledger will hold a debit balance being the amount of the unpaid invoices. To fully understand this see Double-entry bookkeeping system where Debits and Credits form the core of that system.
For instance, the journal entry for paying the telephone bill might look like this:
| Description | Debits | Credits |
|---|---|---|
| Phone expense | $200 | |
| Cash | $200 |
The telephone company would record the exact same transaction (from their side) like this:
| Description | Debits | Credits |
|---|---|---|
| Cash | $200 | |
| Revenue | $200 |
Confusion also arises where the term debit is also informally referred to as a "charge" as in a charge card or a debit card and that credit is a limit set or an amount granted by a company to its customers as in a credit limit. They are used in a different context in these two cases.
It is often assumed that a debit decreases a balance, and a credit increases it, because this is how the terms are shown on bank statements and using a debit card decreases the balance in one's bank account. However, this is because bank statements are traditionally written from the bank's perspective, where the customer's account is a liability. By withdrawing money, the customer is decreasing the bank's liability. Since liability accounts normally have a credit balance, the withdrawal of cash from a banking account is reflected on the bank's balance sheet as a debit.
See also
External links
- Debits and Credits Explanation with Examples.
Bookkeeping (book-keeping or book keeping) is the recording of all financial transactions undertaken by an individual or organization. The organization may be a business, a charitable organization or even a local sports club.
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Accountancy (profession) or accounting (methodology) is the measurement, statement or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies,
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Latin}}}
Official status
Official language of: Vatican City
Used for official purposes, but not spoken in everyday speech
Regulated by: Opus Fundatum Latinitas
Roman Catholic Church
Language codes
ISO 639-1: la
ISO 639-2: lat
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Official status
Official language of: Vatican City
Used for official purposes, but not spoken in everyday speech
Regulated by: Opus Fundatum Latinitas
Roman Catholic Church
Language codes
ISO 639-1: la
ISO 639-2: lat
..... Click the link for more information.
Latin}}}
Official status
Official language of: Vatican City
Used for official purposes, but not spoken in everyday speech
Regulated by: Opus Fundatum Latinitas
Roman Catholic Church
Language codes
ISO 639-1: la
ISO 639-2: lat
..... Click the link for more information.
Official status
Official language of: Vatican City
Used for official purposes, but not spoken in everyday speech
Regulated by: Opus Fundatum Latinitas
Roman Catholic Church
Language codes
ISO 639-1: la
ISO 639-2: lat
..... Click the link for more information.
The general ledger, sometimes known as the nominal ledger as named originally by Phil Smith, is the main accounting record of a business which uses double-entry bookkeeping.
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A ledger (from the English dialect forms liggen or leggen, to lie or lay; in sense adapted from the Dutch substantive logger), is the principal book for recording transactions.
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In accountancy, the double-entry bookkeeping (or double-entry accounting) system is the basis of the standard system used by businesses and other organizations to record financial transactions.
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account statement or a bank statement is a summary of all financial transactions occurring over a given period of time on a deposit account, a credit card, or any other type of account offered by a financial institution.
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A debit card is a plastic card which provides an alternative payment method to cash when making purchases.
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A debit card is a plastic card which provides an alternative payment method to cash when making purchases.
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liability is anything that is a hindrance, or puts individuals at a disadvantage.
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Financial accounting
In financial accounting, a liability is defined as an obligation of an entity arising from past..... Click the link for more information.
In formal bookkeeping and accounting, a balance sheet is a statement of the book value of all of the assets and liabilities (including equity) of a business or other organization or person at a particular date, such as the end of a financial year.
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In accountancy, the double-entry bookkeeping (or double-entry accounting) system is the basis of the standard system used by businesses and other organizations to record financial transactions.
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