But in accounting their meanings changed. In accounting, debit means the money goes out of the account while credit means money comes in the account. Debit means receiving value on one hand while credit means giving value on the other hand. When a debit account will increase, then the opposite account will decrease with a credit. i.e. Debit (receiver) & Credit (giver).
- Debit: means what comes in your pocket;
- Credit: means what goes out of your pocket.
It means that every transaction affects two accounts. Sometimes in the same funds used as a credit in one area & used as a debit in other.
A debit is an entry which is debited when:
- an asset or expense account will increase;
- liability, equity or revenue account will decrease.
A credit is an entry which is credited when:
- liability, equity or revenue account will increase;
- asset or expense account will decrease.
Types of debit and credit
Types of Debit:
- Assets: Cash, Accounts receivables, Land, Equipment, etc.
- Expenses: Rent expense, Wages expense, Interest expense, etc.
- Loses: Loss due to the sale of assets, etc.
Types of Credit:
- Revolving credit: Can be used repeatedly as long as the account is maintained by done payments on time.
- Installment credit: It is a loan which includes monthly payments, terms, and interest.
- Open credit: An account which neither has a debit and nor credit account. It is an unpaid account which remains to be paid.
Synonyms of Debit & Credit
Debit: account, charge, calculate, check, disadvantage, disbenefit, liability, minus, drawback, downside, handicap, negative, strike, let, obstacle, etc.
Credit: trust, installment plan, boast, value, merit, glory, honor, credit line, trophy, belief, applause, authority, assurance, faith, positiveness, etc.
Abbreviation of Debit & Credit
- Abbreviation used for debit is Dr.
- Dr stands for the debit record (means taking).
- Abbreviation used for credit is Cr
- Cr stands for credit record (means giving).
Golden rules of debit & credit in accounting
The following rules of debit and credit included in accounting:
- Debit what comes in and Credit what goes out.
- The debit is receiver while Credit is a giver.
- Debit all expenses and loses.
- Credit all gains and revenues.
- The debit is recorded on the left side of the ledger while credit is recorded on the right side of the ledger.
- The debit must equal to Credit. i.e. Debit = Credit.
Debit and Credit accounts in the ledger
Accounting system includes a Double entry system. It is the record of every business transaction which has two fold aspects & effects two accounts i.e., Debit or Credit.
|ACCOUNT||INCREASED BY (+)
||DECREASED BY (-)
There are two types of vouchers in accounting:
- Debit voucher
- Credit voucher
Debit voucher is a document used for transferring money from one bank account to another while Credit voucher means accounting transactions with a payment card or bank card. Both of these vouchers are used to keep a record of an accounting transaction.
Debit vouchers are used to make a payment (means cash is credited & another account is debited). Credit vouchers are prepared when we receive cash from somebody.
Debit card VS Credit card
The debit card is used to transfer money electronically from the bank account while Credit cards are used to borrow money which has to be repaid later.