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What Is Debit and Credit

Date post: 21-Jan-2017
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Author: trendstatic-corporation
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Slide 1

Accounting is the systematic recording and organizing of all the financial information of a company. This refers to the bookkeeping function of Accounting; where bookkeepers record accounts in journals and transferring it to a ledger. Accounting also has the reporting function where all the gathered financial information are used to create financial statements to analyze and understand the financial health and performance of the business. Its pretty straightforward, almost all people can understand this definition at first look, but what confuses everybody is the concept of Debit and Credit. Now to set things clear, lets define first debit and credit.

What is DEBITAnd CREDIT ?

WHAT IS DEBIT AND CREDIT?DEBIT - is an Accounting entry that increases Assets and decreases Liabilities and Owners Equity.CREDIT - is an Accounting entry that decreases Assets and increases Liabilities and Owners Equity.

WHY IS IT CONFUSING?Understanding Debit and Credit is counterintuitive. Forget all the things you know about the word Credit because were not talking about credit cards, debt, recognition, or acknowledgement of some sort. Treat this two words as if youve encountered them for the first time. This is what confuses and scares away people from learning accounting with no intention of going back. If you can take this concept in, youre halfway to mastering Debit and Credit.

HOW CAN YOU UNDERSTAND IT?Debit and Credit is designed to represent the duality of a Single Transaction. To understand better, suppose your business received Cash for a Sale of Product. When you purchase something and pay for it, your Cash will decrease but does this mean your Sales will decrease also?

Next, you need to know the Basic Accounting equation.

ASSETS = LIABILITIES + EQUITY

WHAT IS DEBIT AND CREDIT?DEBIT - is an Accounting entry that increases Assets and decreases Liabilities and Owners Equity.CREDIT - is an Accounting entry that decreases Assets and increases Liabilities and Owners Equity.

WHY IS IT CONFUSING?Understanding Debit and Credit is counterintuitive. Forget all the things you know about the word Credit because were not talking about credit cards, debt, recognition, or acknowledgement of some sort. Treat this two words as if youve encountered them for the first time. This is what confuses and scares away people from learning accounting with no intention of going back. If you can take this concept in, youre halfway to mastering Debit and Credit.

For example, if you received cash for a product or service, youll write debit Cash and Credit Sales. Why? Because receiving cash increases Assets and it alsoincreases Sales which affects Equity. In short, you debit cash becauseit increase your asset and you credit Sales because it increases your Equity.

CONCLUSION

Debit and Credit is a very confusing theory to understand. So if you dont get it right away, give yourself some break and go at it again. Accounting itself is simple. It has been in this world for 500 years and it might added to why is it confusing when modern people try to understand it. But just remember the Golden Rule and youre all good.

We're glad to help you!

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TrendStatic Business Solutions is also a Training provider in Ortigas, Philippines.

Click this link to see our Accounting for Non-Accountants Course Outline.


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