This following discussion on Debit & Credit will help you to learn:
- What is Debit & Credit
- Definition of Debit & Credit Concept in Accounting
- What is Debiting & Crediting
- What is Debit balance & Credit Balance
- Why debit and credit in accounting is necessary
Every transaction is needed to be recorded. T account consisting of left and right side which is used for recording transactions. The left side is called Debit and the right side is called Credit. Entering the number in Debit side is called Debiting and putting numbers in the right hand side is called Crediting. In T account to express debit and credit we usually write Dr and Cr.
Debiting in the left side and crediting in the right side is an accounting rule. It is applicable for all accounting transaction. In T account the debit side represents cash receipts and credit side shows cash payment. In tabular analysis increases in cash refers positive amount and negative amount.
After debiting and crediting all the balances both column will be calculated. When debit column exceeds the credit column it is called Credit Balance. If opposite situation happens then it is called as Debit Balance.
Implication of Debit & Credit Theory
In accounting equation both sides must be equal. In tabular summary transactions are recorded in debit and credit side according to its transactional effect. So, each transaction of debit side must be equal to its credit side. The concept is based upon double entry system, the system which suggests that each and every transaction has a dual effect and affect at least two accounts.
For instance, investment by owner equally affects the cash and owner™s equity. Double entry system provides an accurate method. The dual effect of transactions of debit and credit side.
We saw in accounting equation every transaction lead to increase or decrease in the recorded transactions. Now we will see how increase and decrease in the transactions are recorded in the debit and credit side on the basis of Assets, Liabilities and Owner™s equity.
Assets, Liabilities and Owner™s Equity: Assets are the opposite from liabilities and owner™s equity. So increase and decrease in the assets will have a reverse effect from liabilities and owner™s equity.
As for example, increase in assets will be recorded debiting and decrease in assets will be as crediting. As assets have reverse effects so increase in liabilities and owner™s equity will go in the credit side and decrease in liabilities will go in the debit side. Such as Purchase of supplies in the business will effect such as decrease of cash will recorded in cash. In another transaction investment of money increase the cash and it is recorded in the credit side.
Moreover withdrawals of cash decrease the assets and also decrease the owner™s equity. As withdrawal of cash is withdrawal by owner™s so it is debited as the owner™s equity transaction.
Likewise Revenues and Expense are included in business transaction increase in revenues is recorded in credit and decrease in revenue is recorded in debit and transactions of expense just have a reverse effect of revenues.
Accounts Balance
Account balance means after calculating debit and credit side the remaining amount called balance. If debit side exceeds the credit side then it is called credit balance. In contrast if credit side exceeds debit side it is called debit balance. Now from the previous analyzed transaction the balances of transactions are given below.
|
Assets = ‘ ‘ ‘ ‘ ‘ ‘ Liabilities + ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ ‘ Owner™s Equity
|
|
Increase
|
Decrease
|
Decrease
|
|
Debit Balance
|
Credit Balance
|
Credit Balance
|
|
Decrease Asset
|
Increase
|
Increase
|
|
Credit Balance
|
Debit Balance
|
Debit Balance
|
Tagged as:
Basic Accounting,
Debit Credit
Leave a Reply