This time we will discuss the meaning of debit and credit along with examples, benefits and differences. Here’s the explanation …
Table of contents :
Definition of Debit and Credit in General
Definition of debit and credit according to experts
- Definition of Credit
Example of Credit
Credit Benefits
- Definition of Debit
Examples of Debits
Difference between debit and credit
Debit and Credit Determination Criteria in Financial Statements
- Discharge
- Credit
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Definition of Debit and Credit in General
Debit and Credit in general, we must understand the definition of each of these terms.
Definition of credit in general is the ability to make purchases or loans with an agreement to make payments within a certain period.
Meanwhile, the definition of debit in general is a reduction in deposits in bank accounts or bookkeeping records that increase the value of assets or reduce the amount of liabilities.
Debit and credit are terms often used in the world of financial accounting. Debit is defined as an increase in money in savings or accounts and can also be interpreted as an increase in transactions.
Meanwhile, credit is defined as spending money when making a transaction. However, the term credit is better known as the provision of money for loans and loan agreements between the bank and its customers and is required to pay off within a certain period of time.
Debits and credits can not only be interpreted as adding or reducing money in savings. Because for the benefit of the company’s financial statements, debits and credits are not that simple.
Definition of debit and credit according to experts
- Definition of Credit
The origin of the word credit comes from Latin, namely Credere which means trust. Credit is someone to buy or provide a loan by making a payment agreement according to a certain amount of time.
Several experts have explained the meaning of credit, including:
Also Read: Understanding Monetary Policy
According to Thomas Suyatno
Credit is the provision of money which is usually equated with the bill according to the agreement between loan and loan.
According to Henry Dunning
Credit is when someone provides a service for an agreement to make a payment.
According to Mecleod Rivai and Veithzal
Credit is the transfer of money, services or goods from one party to another based on trust with an agreement to pay at a mutually agreed time.
Example of Credit
One example of credit in general is the use of a credit card.
understanding of credit
Credit Benefits
Credit will increase usability of capital
Increase the usability of goods or products
Credit is useful as a tool for economic stability
Become a medium to increase national income
- Definition of Debit
The definition of debit in accounting comes from Latin, namely Debere. Debits are the opposite of credits, as notes on a bookkeeping account that increase the value of assets or reduce the amount of liabilities.
Debit can also be defined as money that must be billed to other people or receivables.
Examples of Debits
One example of a debit that often occurs is when we withdraw money from an ATM machine or from a bank. Transaction notification via SMS will state that a debit has occurred.
definition of discharge
The following is an example of a debit transaction notification via SMS,
<DEBIT IDR 5,500,000.00 on 1 TB xxx 367 account 12/04/2017, at 16: 33: 44- if transitions… and so on.
Difference between debit and credit
After understanding the meaning of debit and credit, it will be easier for us to understand the difference. Some of the differences between credit and debit:
Debits are the recording of nominal money, while credit is the recording of nominal money.
Debt transactions can be interpreted as saving activities in a bank, while credit is an activity issued in bank money or it can also be issued from money in a bank.
Debit is a record of deposits (bookkeeping records of reducing deposits)
Also Read: Understanding Conventional Banks
Debit and Credit Determination Criteria in Financial Statements
Determining debits and credits when filling in corporate accounting entries often creates confusion. An overview of the meaning of debit and credit is:
- Discharge
Data is recorded as the condition of assets and expenses that have increased (added) and when liabilities and equity (debt and equity) have decreased. When writing a company’s financial journal, the debits are usually on the left
- Credit
Data is recorded as a condition where total equity and liabilities increase and when assets and expenses decrease. As opposed to debits, credits are generally written to the right of the financial statements.
Here are some examples of situations for determining what was debited and which was credit:
Sales of goods produced in cash to consumers à Debit is cash and credit is income.
Sales of manufactured goods in the form of debt to consumers. Debit is Credit and Credit is Income.
Purchase of production materials from suppliers in cash à Debit is production materials and credit in cash.
Purchase of production materials from suppliers on credit à Debit is production materials and Credit is debt.
The use of company funds to pay employees à Debit is the cost of Salary and Credit is cash.
To determine debits and credits, try to understand the following account classifications:
Assets (company assets)
Liabilities (company debt)
Owner’s Equity (the company’s capital borrower)
Income (company revenue)
Expenses (company expenses)
Account categories 1, 2 and 3 are in the financial statement balance sheet accounts, while account categories 4 and 5 are in the financial statement income statement account.
In writing a company’s credit and debit financial statements, it is known as an account against the term, that is, transactions that affect at least 2 accounts.
Also Read: Cost Classification
For example, in the purchase of company equipment in debt, the account that is affected by the transaction is machines as fixed assets and the counter account is business payables as a form of purchase on credit.
The terms debit note and credit note are frequently used in corporate accounting writing. A debit note is a document that contains notification about receivables from customers that have increased for some reason.
However, in a debit document, the bote can also contain about the company to the vendor or supplier.
Meanwhile, a credit note is a notification document containing the company’s debt to customers so that it can be used to reduce the company’s debt to vendors or suppliers.
