Credit and Debit in Accounting?

Question

In everyday life, we learn that credit means an increase and debit is a deduction. How come accounting reverses them? I understand they are reversed in accounting but it is too confusing with what I already know. Can anybody simplify why accounting reverses them, so I can remember this more easily?

Answer 1

credit and debit have only one meaning in Accounting.

Debit means the left side of an account, Credit means the right side of an account.

The way accounts increase or decrease depend on the account's normal balance. Cash has a normal debit balance, meaning it increases on the left side of an account. So if you get 500 hundred dollars cash you debit the account 500 dollars. Likewise if you lose 500 dollars cash you would credit it 500 dollars (decrease).

Accounts with a credit balance like liabilities such as Accounts Payable increase when you credit them, and decrease when you debit them. When you take a loan out for 100,000 dollars, your Accounts Payable is credited 100,000 because your increasing the right side of the account. Likewise when you start paying it off, You debit what you are paying because you are decreasing the amount you know.

Hopefully from these examples you understand that debit and credit are not reversable, they always mean left and right. Whether or not an account increases or decreases depends on an accounts normal balance (credit balance or debit balance). I think therein lies the confusion.

Answer 2

Credit Means In Accounting

Answer 3

A credit card, while issued by your bank, is owned by one of the major companies (Visa, MC, etc.). Every time you put purchases on it, it's like taking out a loan on which you have to pay interest. A debit card can be usually be used just like a credit card, but the money comes directly and immediately out of your checking account. There is no interest charged. A checking account holds your money, and you can write checks against it (or use your debit card) to pay for things. Washington Mutual has horrible customer service. If you want to go with a bank, I recommend Wells Fargo. If not, try a credit union.

Answer 4

Well not all accounts are like this. Cash is increased by a debit and decreased by a credit while an Accounts Payable account is increased by a credit and decreased by a credit.

In real life think of credit cards as being an Accounts Payable account.

Answer 5

the basic accounting equation is Assets = Liabilities + Owners Equity (A=L+OE). Within the OE category you have Expenses and Revenues, so A=L+(Revenues-Expenses).

Assets are increased using a debit (hard concept since we all use debit cards but you just have to accept it) and decreased using credits.

Liabilities are increased using a credit and decreased using a debit.

Expenses are increased using a debit and decreased using a credit.

Revenues are increased using a credit and decreased using a debit.

I just tried to think of it as up til now you've had to deal mostly with expenses, but now you are looking at the revenues made off of people like you as well. Good luck, I found accounting to be really tough, so you might want to look into a tutor at your school.

Answer 6

Debit in Accounting

Answer 7

Credit is always to add and debit is always to deduct. So when an account is in credit there are funds there. When in debit they are owed. For example here is a dummy account

Balance £100.00 Cr
Pay in (add) £ 40.00
Balance £140.00 Cr
Take out (remove) £150.00
Balance £ 10.00 Dr (minus balance)
Take out £ 50.00
Balance £ 60.00 Dr (The balance increases because it starts as a minus balance then becomes a bigger minus balance)
Pay in £100.00
Balance £ 40.00 Cr (The £100 paid in clears the £60.00 debit balance leaving a residue of £40.00 in credit.

The symbol Cr means credit and Dr means debit.

Answer 8

In accounting, when you "credit" an account, you decrease the balance due. Subsequently, when you "debit" the account, you increase the balance.