Debit and credit - what are these terms?

Today, accounting is at every enterprise, whether it is a firm, a production, a shop or an educational institution. And a competent person needs to understand elementary financial concepts. Many people have heard such terms as "debit, credit," but what it is, not everyone can explain. However, today knowledge of such basic concepts is simply a necessity. Debit and credit - what is it? It is worth investigating in more detail with these concepts.

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Debit and credit - what is it? These terms are quite abstract, even for the field of accounting, but play a crucial role at all its levels. These concepts can be used interchangeably, both can reduce and increase the number of funds on the account, however these methods operate on the basis of a clear set of accounting principles.

Accounting methods in accounting

The debit and the credit - what is it from a position of the account and audit? These are just the methods that are used in the accounting report. In fact, these are the opposite concepts to each other. Debit can be translated from Latin as "it must", and credit - "I must." These phrases contain the whole essence of these concepts. It will not be a mistake to say that these terms are accounting accounting opposites. If the funds go away, the loan grows. If they come, then the debit is already growing. These concepts determine the directions, possibilities and boundaries of different economic processes and financial transactions.

Income and expense accounting

The concepts in question are used in accounting accounts, presented in the form of a table with two columns. Columns contain data that are taken from such accounts as debit and credit. What it is? We can say that accounting is the basis of the financial language necessary for analyzing the activities of any organization. For this, a posting system is used, which is created specifically for accounting for all transactions. However, there are liabilities and assets. Active accounts are the placement of funds of a bank or a company. Debit in this case - the arrival of funds, and credit, respectively, the expense. For passive accounts, which reflect the state of raising funds, debit accounts will act as an expense, and credit - as a parish. If the income on the accounts of the asset increases, then we can talk about increasing the ownership of this enterprise. If debit accounts grow on passive accounts, then it means that the enterprise's funds are decreasing.

Debit: how does it work?

We will understand this concept. In the terminology of financial statements, money is written off and accrued not to business accounts. It's pointless to say that business is "credited" with the money that it receives, if it's about accounting principles. Debit and credit - what is it, after all? Since the reporting is always balanced, certain accounts can be used simultaneously. Simply put, any transaction has both a loan and a debit. Accountants usually simply write off the funds that come to the company or firm. What does it mean? For example, if assets increase, then this growth goes to the debit accounts. If you buy computers or furniture, then the activity is again increased. In other words, they debit.

Credit: how does it work?

General rules of lending go straight out of business. At the moment when the inventory as it were "leaving" the company, the money begins to flow for the purchase of goods. This increases the debit (money) account, and also increases the loan - that is, the receivables. Capital, incomes and debts grow with loans. That is, they are so-called "credit" accounts, which are written off and reduced.

Decrease vs. increase

How do the concepts of expense and income work in practice? Since different accounts are decreasing and increasing when comparing credit and debit, people tend to confuse these terms. In naked theory, everything happens quite simply. Money only changes its accounts, since both debits and credits only show how the money is redistributed when they leave the company or come into it. The parish, if it is paid (and no other obligations exist), does not reduce its account of responsibility, but increases the assets accounts upon receipt. For example, if an investor buys shares, the business income increases the money account (debit), but also increases the share of participation in the same amount, that is, the balance sheet will be restored. For this purpose, the total turnover on a debit and credit for a certain period is considered. Often you can also find such a term as "debit-credit-posting", however, this concept does not bear any specific meaning. It is simply intended to indicate that the posting is made between credit and debit accounts.

Debit and credit cards

There is some confusion in these terms, as they are often used in different circumstances. Creditors are those who collect money, and if something is credited to the account, the loan will increase. However, this reflects only one aspect of this concept: a loan is a means that has emerged from a company and exists as a borrower's obligations. A debit card is used for immediate transfers of money from a cash account and shows an increase in debit accounts (expenses) in a cash account.