What is the Difference Between Debit and Credit?
🆚 Go to Comparative Table 🆚The difference between debit and credit lies in their impact on a balance sheet and the nature of the transactions they represent. In double-entry accounting, debits and credits are used to record the flow of money in and out of a business. The key differences between debit and credit are:
- Debit:
- Increases the balance of an asset or expense account.
- Decreases the balance of a liability or equity account.
- Reflects incoming money and is recorded on the left side of the ledger as a positive number.
- Credit:
- Increases the balance of a liability, revenue, or equity account.
- Decreases the balance of an asset or expense account.
- Reflects outgoing money and is recorded on the right side of the ledger as a negative number.
In a double-entry accounting system, for every debit in one account, there must be a corresponding credit of equal value in another account to maintain a balanced books. This system allows businesses to track their financial transactions and ensure the accuracy of their financial statements.
Comparative Table: Debit vs Credit
Debits and credits are accounting entries that record the inflow and outflow of money in a business. They are used to maintain a balance in the accounting equation, which states that assets = liabilities + equity. Here is a table summarizing the differences between debits and credits:
| Aspect | Debit | Credit |
|---|---|---|
| Definition | An entry that increases the balance of an asset or expense account, or decreases the balance of a liability, revenue, or equity account. | An entry that decreases the balance of an asset or expense account, or increases the balance of a liability, revenue, or equity account. |
| Direction | Debits are recorded on the left side of the entry. | Credits are recorded on the right side of the entry. |
| Effect on Accounts | Debits increase the balance of asset accounts like cash or expense accounts like utility expense. | Credits increase the balance of liability accounts like loans payable or equity accounts like common stock. |
| Double-Entry Accounting | In double-entry accounting, every transaction involves a debit and a credit, ensuring that the accounting equation remains balanced. |
In a double-entry accounting system, every transaction impacts at least two accounts, with one account being debited and the other being credited. This system helps maintain the balance of the accounting equation and provides a clear record of the business's financial transactions.
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