04-05-2005, 07:15 AM
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by bilal azhar</i>
<br />how would u define debit and credit?
i have been studying accounting for the last two to three years and has studied almost all famous books of accounting like shukla and gupta,frankwood,pbp,pac papers etc but has not find a definition of debit and credit.debit credit rules are given in every book but how would u describe to a layman that what is debit and credit.
one of my accounting teacher,not a chartered accountant gave the following definiton of debit and credit
"when we divide a page into two parts,the left side is called debit and the right side is called credit."
i think that above definiton is not correct.would some body explain to us the debit/credit definition.
bilal
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote"> Contrary to popular belief and even some dictionary definitions, accounting debits and credits do not mean decrease and increase. The only constant definition of debits and credits is that debits are left-column entries and credits are right-column entries. In fact, debits and credits each increase certain types of accounts and decrease others. In asset and expense type accounts, debits increase the balance and credits decrease the balance. In liability, equity and income type accounts, credits increase the balance and debits decrease the balance.
deb·it (dbt)
n.
1. Accounting
a. An item of debt as recorded in an account.
b. The left-hand side of an account or accounting ledger where bookkeeping entries are made.
c. An entry of a sum in the left-hand side of an account.
d. The sum of such entries.
2. A drawback; a detriment.
tr.v. deb·it·ed, deb·it·ing, deb·its
1. To enter (a sum) on the left-hand side of an account or accounting ledger.
2. To charge with a debit The bank debited my account for the overdrawn check.
The fundamental concept of debit and credit is simple, yet confusing. To most ordinary people (accountants don't count) with a checking account at a bank, they are used to hearing debit and credit. That is the point of confusion I think.
When you go make a deposit of $100 into your checking account, the teller tells you that she credited your account with with $100. She also tells you that because you had a bounce check, they had to debit your account for $25.
That's how most people grow up understanding debit and credit. Debit is when they lose money and credit is when the gain money (see bank reference above). That kind of thinking is what confuse people when they first try to learn accounting. If you fall into that category, you need to stop thinking that way otherwise accounting won't make any sense to you.
Let's go back to the bank examples above. When the teller tells you that she credited your account for $100 and debited $20 for your bounce check fee, she's telling you that from her (the bank's perspective). Let's look at it from the bank's perspective. To the bank, your checking account is a liability. The money you deposit in your checking account is yours, and you could take it out at anytime. The bank does use your money for other purposes like making out loans or investments. That's how they make their money. While they use your money to make money, they owe you that money that should be in your account. That's why your account with the bank is a liability account to them.
In accounting, a liability account is a credit account. Think of credit as a negative number, and debit as a positive number. When you deposited your $100, you increased the value that was in your checking account, consequently the bank's liability for your account increased. Since a liability account is a credit (a negative number), and the bank need to increase your account, they need to credit (add a negative number) to your account. In other words, in order to make a negative number a bigger negative number, we add a negative number to it. Since credit is a negative number, the bank credit your account. That's why the teller told you she credited your account.
As for the $20 bounce check charge, the teller told you that the bank debited your account. Again, remember that your account with the bank is a liability account to them. When they deduct $20 from your account, they are reducing their liability to your account. Since a liability account is a credit (a negative number), and they need to reduce that negative number, they add a positive number to it. Adding a positive number is the same as debiting the account. Remeber that debit is positive and credit is negative.
Account Type -------- Debit(+) Credit(-)
ASSETS--------- Increases Decreases
LIABILITIES ------- Decreases Increases
EQUITY ------- Decreases Increases
INCOME ------- Decreases Increases
EXPENSES ------- Increases Decreases
---------------------------------------------
âLittle minds are tamed and subdued by misfortune; but great minds rise above it.â
<br />how would u define debit and credit?
i have been studying accounting for the last two to three years and has studied almost all famous books of accounting like shukla and gupta,frankwood,pbp,pac papers etc but has not find a definition of debit and credit.debit credit rules are given in every book but how would u describe to a layman that what is debit and credit.
one of my accounting teacher,not a chartered accountant gave the following definiton of debit and credit
"when we divide a page into two parts,the left side is called debit and the right side is called credit."
i think that above definiton is not correct.would some body explain to us the debit/credit definition.
bilal
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote"> Contrary to popular belief and even some dictionary definitions, accounting debits and credits do not mean decrease and increase. The only constant definition of debits and credits is that debits are left-column entries and credits are right-column entries. In fact, debits and credits each increase certain types of accounts and decrease others. In asset and expense type accounts, debits increase the balance and credits decrease the balance. In liability, equity and income type accounts, credits increase the balance and debits decrease the balance.
deb·it (dbt)
n.
1. Accounting
a. An item of debt as recorded in an account.
b. The left-hand side of an account or accounting ledger where bookkeeping entries are made.
c. An entry of a sum in the left-hand side of an account.
d. The sum of such entries.
2. A drawback; a detriment.
tr.v. deb·it·ed, deb·it·ing, deb·its
1. To enter (a sum) on the left-hand side of an account or accounting ledger.
2. To charge with a debit The bank debited my account for the overdrawn check.
The fundamental concept of debit and credit is simple, yet confusing. To most ordinary people (accountants don't count) with a checking account at a bank, they are used to hearing debit and credit. That is the point of confusion I think.
When you go make a deposit of $100 into your checking account, the teller tells you that she credited your account with with $100. She also tells you that because you had a bounce check, they had to debit your account for $25.
That's how most people grow up understanding debit and credit. Debit is when they lose money and credit is when the gain money (see bank reference above). That kind of thinking is what confuse people when they first try to learn accounting. If you fall into that category, you need to stop thinking that way otherwise accounting won't make any sense to you.
Let's go back to the bank examples above. When the teller tells you that she credited your account for $100 and debited $20 for your bounce check fee, she's telling you that from her (the bank's perspective). Let's look at it from the bank's perspective. To the bank, your checking account is a liability. The money you deposit in your checking account is yours, and you could take it out at anytime. The bank does use your money for other purposes like making out loans or investments. That's how they make their money. While they use your money to make money, they owe you that money that should be in your account. That's why your account with the bank is a liability account to them.
In accounting, a liability account is a credit account. Think of credit as a negative number, and debit as a positive number. When you deposited your $100, you increased the value that was in your checking account, consequently the bank's liability for your account increased. Since a liability account is a credit (a negative number), and the bank need to increase your account, they need to credit (add a negative number) to your account. In other words, in order to make a negative number a bigger negative number, we add a negative number to it. Since credit is a negative number, the bank credit your account. That's why the teller told you she credited your account.
As for the $20 bounce check charge, the teller told you that the bank debited your account. Again, remember that your account with the bank is a liability account to them. When they deduct $20 from your account, they are reducing their liability to your account. Since a liability account is a credit (a negative number), and they need to reduce that negative number, they add a positive number to it. Adding a positive number is the same as debiting the account. Remeber that debit is positive and credit is negative.
Account Type -------- Debit(+) Credit(-)
ASSETS--------- Increases Decreases
LIABILITIES ------- Decreases Increases
EQUITY ------- Decreases Increases
INCOME ------- Decreases Increases
EXPENSES ------- Increases Decreases
---------------------------------------------
âLittle minds are tamed and subdued by misfortune; but great minds rise above it.â
