Tuesday 29 January 2019

21. Debit, and 22. Credit

21. Debit:

     The term 'debit' has been derived from the Latin word 'debere' which means 'to owe'. So, literally, the term 'debit' (sometimes known as 'charge') means  the amount owed by an account for the benefit received by that account. In short, it means the benefit received by an account.

     In book-keeping, the term 'debit' may be used in three ways, viz.,
(a) as a noun.
(b) as an adjective and
(c) as a verb.

     When it is used as a noun, it is termed 'debit'. The term 'debit' means an entry on the debit side or left-hand side of an account. In other words, it means an amount charged to an account or the value recorded on the debit side of an account for the benefit received by that account.

     When it is used as an adjective, it is termed 'debit side', and 'debit side' means the left-hand side of an account.

     When it is used as a verb, it is termed 'to debit', and 'to debit' means to make an entry on the debit side or the left-hand side of an account.



22. Credit:

     The term 'credit' has been derived from the Latin word 'credere' which means 'to believe'. So, literally, the term 'credit' (sometimes known as 'reward or discharge') means the amount owed to an account for the benefit given by that account in the belief that it's value will be returned at a later date. In short, it means the benefit given by an account.


In book-keeping, the term  'credit' may be used in three ways, viz.,
(a) as a noun.
(b) as an adjective and
(c) as a verb.

     When it is used as a noun, it is termed 'credit'. The term 'credit' means an entry on the credit side or right-hand side of an account. In other words, it means the amount of reward or discharge given to an account or the value recorded on the credit side or right-hand side of an account for the benefit given by that account.

     When it is used as an adjective, it is termed 'credit side', and 'credit side' means the righ-hand side of an account.

     When it is used as a verb, it is termed 'to credit', and 'to credit' means to make an entry on the credit side or the right-hand side of an account.

Differences between Debit and Credit:

     The important differences between debit and credit are:

     1. Debit refers to the amount of charge given (i.e., the amount charged) to an account for some benefit received by that account. On the other hand, credit refers to the amount of discharge or reward given to an account for some benefit given by that account.

     2. Debit is given to an account, when that account has received some benefit. But credit is given to an account, when that account has given some benefit.

     3. The entry for the debit given to an account is made on the left-hand side of that account, whereas the entry for the credit given to an account is made on the right-hand side of that account.

     4. Debit results in increase in the amount of an asset, decrease in the amount of liability, decrease in the amount of owner's capital, increase in the amount of an expense or decrease in the amount of an income. On the other hand, credit results in decrease in the amount of an asset, increase in the amount of a liability, increase in the amount of owner's capital, decrease in the amount of an expense or increase in the amount of an income.


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