The main element of bookkeeping is double entry. Its essence boils down to the interconnected reflection of the same amount of a certain business transaction simultaneously on two offsetting accounts: on the loan of one and the debit of the other.
The use of only two accounts occurs in simple accounting entries. Double-entry can affect more accounts, in which case the posting is complicated. Debit and credit definition comes down to reflecting the essence of business transactions in monetary terms and shows their direction and the boundaries of the possibilities of these operations.
To make it easier to understand the definitions of debit and credit, you need to remember that “debit” comes from the Latin “he must”, and “credit” - “I must”. The concept of debit and credit will determine the essence of compiling accounting accounts and postings.
The account is a table with two columns. The debit is reflected in the left side of accounting, credit, respectively, in the right.
Accounting accounts are divided into active and passive accounts. Active accounts reflect the placement of company or bank funds, while passive accounts reflect fundraising. For active accounts, debit means income, and for passive accounts, expense. Accordingly, a loan in passive accounts means the expenditure of funds, and in active accounts it means income.
On active accounts, funds move from credit to debit. And on passive - on the contrary: from debit to credit.
In active accounts, an increase in debit means an increase in the property of the organization. On the other hand, in passive accounts, the fact of an increase in debit indicates a decrease in the organization's own funds.
An increase in credit on active accounts means a decrease in the value of the property of the enterprise. If the loan is increased in passive accounts, then the company's own funds have increased.
An account is the basic concept of an accounting language. Debit and credit definition here are the key terms. With the help of accounts, all events of the economic life of the enterprise are reflected. Recording is in the form of postings. A posting is a reflection of a business transaction or other business fact on the offsetting accounts.
There are two ways to use accounting accounts: income and expense. The arrival means that the amount of money passing through the transaction is added to the account of the company. Expense means that the amount posted is debited from the account, that is, deducted from the amount on the account.
Postings use two accounting accounts. The use of double entry is mandatory. Such a record is called a double entry.
To simplify accounting, the concepts of “debit” and “credit” were introduced. To determine the essence of the concepts of debit and credit for dummies, consider the following facts.
Terms appeared about 500 years ago. In fact, they were called upon to replace the rather conventional concepts of “income” and “expense”, which, in essence, reflect completely different directions of operations taking place on active and passive accounts. With the advent of “debit” and “credit”, it became easier to operate with concepts. In the language of accountants, debit began to indicate an increase in an asset and a decrease in liabilities. Accordingly, the loan reflects the opposite operations: a decrease in an asset and an increase in liability.
Thus, the accounts are used with the opposite values ​​in the posting: one for debit and one for credit. For this, you need to know the debit and credit definition. This characterizes absolutely all types of accounts: active, passive and active-passive.
Each business transaction leads to an increase in one indicator and, accordingly, a decrease in another. For example, receipt of money from a current account to a cash desk is reflected in the transaction as an increase in money at the cash desk and a decrease in the current account by the same amount. This reflection of operations helps to control the use of household assets and the correctness of accounting records. Here you need to know the debit and credit definition and not confuse them.
The principle of double entry does not affect the final balance sheet and does not violate the equality of total assets and liabilities.
Double entry should be carried out correctly to ensure the correct completion of the accounting cycle of work.