Debit and Credit are two terms used mostly in Banks and are associated to money and dealings. These are entries in double entry bookkeeping made in account ledgers in order to keep records of variation occurs as the business transactions take place. Generally, the source account for the transaction is termed as Credit and the destination account is called as Debit. The difference between total debits and total credits within a single account is known as the account’s balance. Debit is a sum of money taken from a bank account. Credit is a sum of money placed into a bank account. Debit is an accounting entry. Credit is an accounting entry. In an Asset Account, a Debit increases the balance and a Credit decreases the balance. For liability accounts type, Debit decreased the balance and credit does the opposite. A Debit decreases the balance in Equity Accounts where balance is increased by Credit. Accounts containing a Debit balance will increase the amount when a Debit is added to them but it will reduce after a credit is added; however, it depends on the types of accounts. In Cash sale, cash amount is Debit and the Revenue Account is Credit. The following example will help in differentiating Debit and Credit. Suppose if a factory sells its product to a buyer for cash of $10, it provides a revenue of the same mount to the seller with the same case in the box. The cash will be recorded in increase of cash amount for debit account and an increase of the revenue account with a credit and the entry is Cash=Revenue, Debit-$10, and Credit=$10. On the other hand, the company buys an equipment against #10 on credit. It will be an addition to the existing, fixed assets account with a debit and an increase in the accounts payable account in a credit and the entry will be: Assets=Accounts Payable, Debit=$10, and Credit=$10.
What is Credit?
Credit is basically a trust, allowing one party to provide money or resources in place of money to another party where the second party does not reimburse the former right away, but rather arrange either to repay or return the received resources later on. Provision of money is not a compulsion in Credit and the idea applied in barter economies, basing on the direct exchange of goods and services. Types of Credit includes banks, commerce, consumer credit, investment credit, public credit, real estate credit etc. When it is used for commercial trading, it terms as ‘trade credit’. Credit is usually not for financially weak parties, or companies as organizations only offer it to such clients whom they know are financially strong.
What is Debit?
A Debit is an accounting entry, recorded against one account. A Debit increases the balance in Asset Accounts, while decreases in Liability Accounts and in Equity Accounts. Debiting an account stands for entering an amount on the left side of the account. All the asset accounts hail in Debit and are considered Left Side. The Debit accounts have debit balances. When debits exceed credits, the account’s balance becomes Debit but when credits exceed debits, the account gets Credit balance.
- Debit means Left or Left Side; Credit account is listed on the Right Side of another account
- General ledger accounts contain sides for both Debit and Credit
- Credit is a sum of money put into a bank account; Debit is a sum of money taken from a bank account
- Debit stands for purchasing with one’s own money; Credit is to buy by borrowing money
- Credit is written in the abbreviation term as ‘Cr’; Debit is abbreviated as ‘Dr’