Today, accounting is at every enterprise, whether it is a company, production, store or educational institution. And a literate person needs to understand basic financial concepts. Many have heard such terms as “debit accounts, credit,” but not everyone can explain what it is. However, to date, knowledge of such basic concepts is simply a necessity. Debit and credit - what is it? It is worthwhile to understand these concepts in more detail.
Total information
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 are able to reduce and increase the amount of funds in the account, however, these methods operate on the basis of a clear set of accounting principles.
Accounting Methods
Debit and credit - what is it from the position of accounting and audit? These are just the methods that are used in the accounting report. In fact, these are opposite concepts to each other. Debit can be translated from Latin as "must it", and credit - "must I". 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 funds go, then the loan grows. If they come, then debit is already growing. These concepts determine the directions, opportunities and boundaries of various economic processes and financial transactions.
Income and expense accounting
The concepts in question are used in accounts presented in the form of a table with two columns. The columns contain data that is taken from accounts such as debit and credit. What it is? We can say that accounting is the basis of the financial language necessary for the analysis of the activities of any organization. For this, a posting system is used, which was created specifically for accounting for all operations. However, there are liabilities and assets. Active accounts are the placement of funds of a bank or company. The debit in this case is the receipt of funds, and the loan, respectively, is an expense. For passive accounts, which reflect the state of raising funds, debit accounts will act as expenses, and credit accounts as revenues. If the income in the asset accounts increases, then we can talk about an increase in the ownership of this enterprise. If the debit will increase on passive accounts, then this means that the funds of the enterprise are reduced.
Debit: how does it work?
We will deal with this concept. In the terminology of financial statements, money is not debited and credited to business accounts. It makes no sense to say that the business is "attributed" to the money that it receives when it comes to accounting principles. Debit and credit - what is it, after all? Since reporting is always balanced, certain accounts can be used simultaneously. Simply put, any transaction has both a loan and its 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 debit accounts. If computers or furniture are bought, then active increase again. In other words, they are debiting.
Credit: how does it work?
General lending rules go straight out of business. At that moment, when the inventory “leaves” the company, money begins to flow on the purchase of goods. This increases the debit (cash) account, and also increases the credit - that is, receivables. Capital, income and debt grow with loans. That is, these are the so-called "credit" accounts, which are written off and reduced.
Decrease versus increase
How do the concepts of expense and income work in practice? Since different accounts decrease and increase when comparing credit and debit, people tend to confuse these terms. In bare theory, everything happens quite simply. Money only changes their accounts, since debits and loans only show how money is redistributed when they leave the company or come into it. An arrival, if paid (and there are no other obligations), does not reduce its liability account, but increases the asset accounts upon receipt. For example, if an investor buys shares, business income increases the cash account (debit), but also increases the share of participation by the same amount, that is, the balance sheet will be restored. For this, the final turnovers for debit and credit for a certain period are considered. Often you can also come across a term such as “debit-credit-postings”, but this concept has no concrete meaning. It is simply intended to indicate that postings are made between credit and debit accounts.
Debit and credit cards
There is a certain confusion in these terms, as they are often used in different circumstances. Lenders 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: credit is funds that have left the company and exist in the form of obligations of the borrower. A debit card is used for immediate transfers of money from a cash account and shows an increase in debit (expense) accounts in a cash account.