Accounting Credit Debit

Debit and credit are two common words in accounting or say formal accounting and bookkeeping terminology. They are the basic concepts of accounting representing the two side in every transaction recorded. They are also known as the dual aspect concepts. The word debit comes from the Latin word debitum (debtor) and credit creditum (creditor). Debit means the value receive by the business and credit is the value parted with. In every value receives there is a corresponding value parted with.

The place of a debit in the equation is at the left-hand side representing the assets while the credit is at the right hand side representing the liabilities and owner`s equity. The amount of asset will increase if there is a debit and there is a decrease if there is a credit. The amount of liability will increase if there is a credit and there is a decrease if there is debit. In the owner`s equity there is an increase in the capital account if there is a credit but decreases when there is a debit. Credit increases the amount of revenue debit decreases. In the expense debit increases its amount, credit decreases. These are the rules of debit and credit.

Elements comprising the balance sheet are made up by the basic accounting equation. The formula is Assets=Liabilities + Capital. The balance sheet represents the real accounts which maintained at the end of the accounting period. The income statement composes the revenue and expense accounts that closed to the capital account during the end of the accounting period.

Every economic transaction made by the business affects the equation. It should be maintained equal. This means that the total debits is always equal to the total credits. The amount represented the assets must equaled the amount represented in liability and owners equity. The equation of accounting plays an important role in analyzing and recording business transaction and its flow.