Understanding Debit and Credit in General As well as The Differences Between The Two

To find out definition about Debit and Credit in general, we must understand the definition of each of these terms. understanding Credit in general is the ability to make purchases or loans with an agreement to make payments within a certain period. While the definition of Debit in general is a reduction in deposits in bank accounts or bookkeeping accounts that add value to assets or reduce the amount of liability.

Debit and credit are terms that are often used in the world of financial accounting. Debit is defined as an increase in money in a savings or account and can also be interpreted as an increase in transactions. While credit is defined as spending money when making transactions.

However, the term credit is better known as the provision of money for loan and loan agreements between banks and their customers and is required to pay off within a certain period. Debit and credit cannot only be interpreted as an increase or decrease in money in savings. Because for the benefit of the company’s financial statements, debit and credit are not that simple.

Understanding Debit and Credit According to Experts

A. Definition of Credit

The origin of the word credit is from Latin, namely Credere which means trust. Credit is someone to buy or make a loan by entering into an agreement in payment in accordance with a certain amount of time.

Some experts have explained about the definition of credit, including:

1. Thomas Suyatno

According to Thomas Suyatno, credit is the provision of money that is normally equated with the bills in accordance with the agreement between the loan and the lender.

2. Henry Dunning

According to Henry Dunning, the definition of credit is when someone gives a service to an agreement to make a payment.

3. Mecleod Rivai and Veithzal

According to Mecleod Rivai and Veithzal, the notion of credit is the delivery of money, services or goods from one party to another party on the basis of trust with an agreement to pay at the time agreed upon.

4. Hasibuan

According to Hasibuan, the definition of credit is all types of loans that must be paid together with the interest by the borrower as agreed upon.

Credit Example

One example of credit is the use of credit cards in general.

Credit Example

Credit Benefits

There are several credit benefits, including:

  • Credit will increase the efficiency of capital.
  • Increase the usability of an item or product.
  • Credit is useful as an instrument of economic stability.
  • Become a media to increase national income.

B. Definition of Debit

The definition of debit in accounting comes from Latin, namely Debere . Debit is the opposite of credit, as a record in the accounting post that increases the value of assets or reduces the amount of liabilities.

Debit can also be interpreted as money that must be billed to others or accounts receivable.

Debit Example

One example of a debit that often occurs is when we make money withdrawals from ATM machines or from banks. Notification of the transaction via sms will mention a debit has occurred.

Debit Example

Here is an example of a debit transaction notification via SMS,

Also read: Definition of Dividends.

Debit and Credit Differences

After fully understood the meaning of debit and credit then we will more easily know the difference between the two. Some differences in credit and debit include:

  • Debit is the recording of a reduction in nominal money, while credit is a recording of the addition of nominal money.
  • Debit transactions can be interpreted as saving activities in a bank, whereas credit is an activity to spend money at a bank or can also borrow money at a bank.
  • Debits are the accounting records of reducing deposits

Criteria for Determining Debit and Credit in Writing Financial Statements of the Company

The determination of debits and credits when filling a company’s accounting entry often creates confusion. An overview of the meaning of debit and credit is:

1. Debit

Data recorded as condition of assets and costs have increased (increased) and when liability and equity (debt and capital) decreased. At the time of writing the company’s financial journal, the debit normally is on the left

2. Credit

Data is recorded as a condition where equity and liability have increased in number and when assets and costs have decreased. In contrast to debits, credit is generally written to the right of the financial statements.

Here are some examples of situations to determine which ones are debits and which ones are credit:

  • Sale of production goods in cash to consumers à Debit is cash and credit is income.
  • Debt sales of goods to consumers Debit is Receivable and Credit is Income.
  • Purchase of production materials from suppliers in cash à Debit is production material and credit is cash.
  • Purchase of production materials from suppliers on credit à Debit is production material and Credit is debt.
  • The use of company funds to pay employees à Debit is Salary expenses and Credit is cash.

To determine debits and credits, try to understand the following account classifications:

  • Assets (company assets).
  • Liabilities (corporate debt).
  • Owner ‘Equity (corporate capital borrower).
  • Income (company income).
  • Expenses (company spend).

Account categories 1, 2 and 3 are in the balance sheet financial statement accounts while for account categories 4 and 5 are in the income statement financial statement accounts. In writing the company’s financial debit and credit reports, the term known as the opposite account is a transaction that affects a minimum of 2 accounts.

For example, on a debt purchase transaction for a company, the account affected by the transaction is a machine as fixed assets and the opposite account is a trade debt as a form of credit purchase.

The terms debit note and credit note are often used in writing corporate accounting. Debit notes are documents that contain notifications regarding receivables from customers which are increasing for certain reasons.

However, the bote debit document can also contain information about the company to the vendor or supplier. While the credit note is a notification document that contains the company’s debt to the customer so that it can be used to reduce the company’s debt to the vendor or supplier.

The Importance of Making Debit and Credit Reports in the Company

A business within a company naturally experiences transactions, both internally and externally. These transactions require companies to make transaction documents in the form of financial statements.

One of them is to determine the rate of entry and exit of company funds to minimize the possibility of over budgeting in certain account categories in reporting. There are five elements in accounting transactions, namely debt, assets, income, capital and costs or expenses.

A debit transaction is definitely accompanied by a credit transaction. Companies that do not have debit and credit reporting documents cannot control the flow of financial inflows. In addition, company financial data cannot be traced if something happens to the company’s finances.

With the debit and credit reports expected to help oversee the company’s finances from the possibility of corruption from employees. Because good debit and credit data are always accompanied by credible receipts or official notes.

Also read: Definition of Remuneration.

Above was an explanation of the meaning of debit and credit in general, the difference between debit and credit, examples of debits, and the criteria for both. Hopefully useful and add insight.

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