In this world, all the accounting software use debit and credit tools of accounting system. To know the debit and credit and their difference is necessary to pass correct journal entries in the your accounting software. If you still do not know the difference between debit and credit, there is chance of mistake of wrong debit or credit to any account. Due to this, your accounting statement will not show true financial results. So, today, we are trying to teach the differences between debit and credit in accounting.
Debit and credit is not just plus and minus. It is scientific way to pass the journal entries. On the basis of type of account, we debited any account and we credited any other account. In every journal entry, all the debit account's amount will equal to credit account's amount. On following basis, we can tell the differences in debit and credit.
1. On the Basis of Effect on Our Assets
Whether we have current asset or fixed asset, when we debit any asset account, value of same asset will increase. We know, bank account represent our bank asset. If we debit bank account with $ 30,000, it means, our bank balance has increased by $ 30,000.
If we credit any asset account, value of asset will decrease. If we credit same bank account with $ 20,000. It means balance of bank will decrease by $ 20,000. So, it is very easy to understand the difference between debit and credit by knowing its effect on our assets.
2. On the Basis of Effect on Our Liabilities
If we debit any liability, value of our liability will decrease. It will apply both on our current liability and long term liabilities. For example, we debit MR. A creditor by $ 10,000. It means, now our liability to Mr. A creditor has decreased by $ 10,000.
If we credit any liability account, it means, value of same liability will increase. We have credited Mr. B creditor account by $ 40,000, it means, value of Mr. B creditor has increased by $ 40,000.
3. On the Basis of Recording Expenses and Incomes
For recording expenses, we debit the expenses. For recording, incomes, we credit the incomes. By debit the expenses, we are decreasing our capital. By credit incomes, we are increasing our capital. For example, we have debited insurance premium fees of $ 1000, it means, our total capital will decrease by $ 1000. Capital is the part of our liability. So, if think deeply, by doing this, debit will decrease the value of our liability.
We have received commission of $ 2000 for business deal. So, this is our income. So, for recording this, we will credit commission account. It will increase our capital. So, by doing this, capital liability will increase.
Debit and credit is not just plus and minus. It is scientific way to pass the journal entries. On the basis of type of account, we debited any account and we credited any other account. In every journal entry, all the debit account's amount will equal to credit account's amount. On following basis, we can tell the differences in debit and credit.
1. On the Basis of Effect on Our Assets
Whether we have current asset or fixed asset, when we debit any asset account, value of same asset will increase. We know, bank account represent our bank asset. If we debit bank account with $ 30,000, it means, our bank balance has increased by $ 30,000.
If we credit any asset account, value of asset will decrease. If we credit same bank account with $ 20,000. It means balance of bank will decrease by $ 20,000. So, it is very easy to understand the difference between debit and credit by knowing its effect on our assets.
2. On the Basis of Effect on Our Liabilities
If we debit any liability, value of our liability will decrease. It will apply both on our current liability and long term liabilities. For example, we debit MR. A creditor by $ 10,000. It means, now our liability to Mr. A creditor has decreased by $ 10,000.
If we credit any liability account, it means, value of same liability will increase. We have credited Mr. B creditor account by $ 40,000, it means, value of Mr. B creditor has increased by $ 40,000.
3. On the Basis of Recording Expenses and Incomes
For recording expenses, we debit the expenses. For recording, incomes, we credit the incomes. By debit the expenses, we are decreasing our capital. By credit incomes, we are increasing our capital. For example, we have debited insurance premium fees of $ 1000, it means, our total capital will decrease by $ 1000. Capital is the part of our liability. So, if think deeply, by doing this, debit will decrease the value of our liability.
We have received commission of $ 2000 for business deal. So, this is our income. So, for recording this, we will credit commission account. It will increase our capital. So, by doing this, capital liability will increase.
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