This section Covers..
01. In General meaning
02. Differenciation

In General

Debit and credit are formal bookkeeping and accounting terms. They are the most fundamental concepts in accounting, representing the two sides of each individual transaction recorded in any accounting system. A debit transaction indicates an asset or an expense transaction, a credit indicates a transaction that will cause a liability or a gain. A debit transaction can also be used to reduce a credit balance or increase a debit balance. A credit transaction can be used to decrease a debit balance or increase a credit balance

More Analysis

when you deposit money in the bank, the cashier will tell you "I'll credit your account." From that experience, most people assume that cash is a credit, and so credits are good. That is further reinforced when reductions in the accounts are referred to as debits. Besides, if you remove the "i" from debit, you get "debt." So, debits seem bad.

Unfortunately, the conditioning we receive at the bank is causing real confusion in the accounting class. Why? Because in accounting we understand that the bank account is a debit account and that debts are credit accounts - the opposite of what most people expect. That is why your checking account card it referred to as a debit card.

In fact, debits and credits are neither good nor bad. Each transaction, whether it be a good transaction (deposits), or a bad transaction (bills) has both a debit and an equal credit. That's why they call it "double-entry accounting." When the cashier is telling you he or she will "credit your account", they are also entering a debit for the same amount that they are not telling you about. The same is true for the debits to your account - there is also a credit being made at the same time.

It's the best way to understand debits and credits is to identify two components of each transaction:

1. What did you get?
2. Where did it come from?

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