Credits and Debits are two official accounting and bookkeeping expressions. The credit account enumerates what is payable to others and the debit account enumerates what is receivable from others. Origination of Credit and Debit Credit and Debit are totally differrent in their interpretations and both of them originate from Latin. Debit originated from ‘debere’ that implies ‘to owe’. The Latin word debitum stands for debt. Credit originated from the Latin term ‘credere’ that implies ‘to believe’.Usage of Credits and Debits Usually, the expressions are utilized in the plural form as Credits and Debits. The abbreviation of Credit is Cr. and the abbreviation of Debit is Dr. Credit also denotes the right hand side of a general ledger account and Debit represents the left hand side of the general ledger account. Credits and Debits are entered in the general ledger account in a T-form. If the value of the credits is less than the value of the debits, it is regarded as a debit balance and on the other hand, if the value of the credits is more than the value of the debits, then it is considered to be a credit balance.
The credit entries are done on the right side of the perpendicular line and the debit entries are done on the left side of the perpendicular line. The credits and debits are not negative or positive values. The account balance can either be a credit balance or a debit balance, not a negative or positive balance.
The following tabular form gives an idea about how the debit and credit entries are recorded in a general ledger account:
Expenditures, dividends, losses and assets accounts go up in value while they are debited and go down in value while they are credited. On the contrary, revenues, income, gains, owner’s equity capital and liability accounts go down in value while they are debited and grows in value while they are credited. The credits and debits constitute the base of the Double Entry Bookkeeping System.
Frequently, it is presumed that credits grow a balance and debits reduce the balance as the bank statements function in that way, for example, application of a debit card reduces the balance in the bank account of an individual. Nevertheless, this is due to the reason that bank statements are conventionally prepared from the viewpoint of the bank. Here the account of the customer is regarded as a liability. If the customer withdraws cash, the liability of the bank gets reduced. As the liability accounts usually carry a credit balance, cash withdrawn from a bank account is shown on the balance sheet of the bank in the form of a debit. Golden Rules of Bookkeeping System: The total number of account heads applied in accounting processes are categorized into three types and they are the following:
Personal Account: In case of personal account, debit the receiver, credit the giver.
Real Account: In case of real account, debit what comes in, credit what goes out.
Nominal Account: In case of nominal account, debit all expenses and losses, credit all incomes and gains.
Last Updated on : 9th July 2013