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The difference between debit and credit in financial accounting

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The difference between debit and credit in financial accounting

Debit and credit - When filling out a financial accounting report, you must have come across debit and credit columns. This debit and credit column has become something that must be in every accounting system, but do you know the difference between this debit and credit so that it makes it entered into a different column?

 

If you don't know it, then you need to know what each debit and credit mean because this credit debit can affect the amount of each transaction in the financial statements.

 

Difference between debit and credit

1. Definition of discharge

Debit comes from the Latin word "debate" which means debt. So, the debit is a reduction in deposits in a bank account or accounting records when there are additional assets, expenses, losses, a reduction in the amount of income, profits, liabilities, and owner's equity.

 

Debits should be placed on the left side of the financial statement account, but if the debit side exceeds the credit side, the account is called a debit balance. This debit account refers to the total assets and liabilities withdrawn by a particular bank account.

 

2. Definition of Credit

Credit also comes from the Latin word, namely "credere" which means to entrust. So, this credit is an accounting entry that has to make a purchase or loan transaction that can only be made when there is an increase in income, a reduction in assets, profits, liabilities, owner's equity, expenses, and losses.

 

Credit must be placed on the right side of the financial statement account, but if the credit side exceeds the debit side, the account will be called the credit balance. This credit account refers to the number of assets and liabilities added to a particular bank account.

 

When to use debit and credit?

The use of debits and credits must be done correctly and completely otherwise this will result in the results of the financial statements being inaccurate and dangerous. Therefore, there are times when you have to use this debit and credit account. Here are 4 good times to use a debit and credit account:

 

1. Asset

Assets are company assets divided into current and non-current assets. Current assets include cash, accounts receivable, prepaid rent, and so on. Non-current assets include machinery, vehicles, and equipment.

 

With this, debits are assets and credits are cash. For example, if the company buys a vehicle for IDR 16,000,000 in cash, then the account will look like this:

  • Vehicle: IDR 16,000,000
  • Cash: Rp. 16,000,000

 

2. Expense

Expense means expenses such as salary expenses, equipment expenses, electricity/water loads, and the like. With this, debits are expenses and credits are cash.

 

For example, if the company pays the employee's salary at the end of October 2020 amounting to IDR 3,500,000, then the account will look like this:

  • Salary expenses: IDR 3,500,000
  • Cash: Rp. 3,500,000

 

3. Accumulation

Accumulation is the portion of non-current assets whose value can increase if credited. When this accumulation is recorded, it will reduce the value of the fixed assets. From here too, you can find out whether the asset has suffered a loss or profit when it is sold later.

 

With this, debits are accumulated expenses and credits are accumulated. For example, a company that owns a vehicle will accumulate IDR 1,800.00 each month, so the account will look like:

  • Vehicle accumulation expenses: IDR 1,800,000
  • Vehicle Accumulation: IDR 1,800,000

 

4. Liability and equity

Liabilities are debt and equity is borrowed capital. With this, debit is cash and credit is debt.

For example, a company that borrows capital from a bank for IDR 10,000,000, then its account will look like:

  • Cash: Rp 10,000,000
  • Bank Loans: IDR 10,000,000

 

To make it easier for you to make financial reports and avoid mistakes in the use of debits and credits, you can use the software. Accountant is the right solution if you want to buy accounting software at affordable prices.

 

For complete information, please WhatsApp us or directly contact Accountanesia.ID via WA to get attractive offers and free consultations.

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