Tuesday, January 22, 2008

Debits and Credits

Debit and Credit: Two very simple words that can be mixed up if you are not careful.

Out in the non-accounting world, the word "credit" gets thrown around as a term meaning that you owe someone money, often swiped on a card or obtained through a loan. "Debit" is often used in the non-accounting world in conjunction with a "Debit Card" to mean that you want the money taken from your checking account.

However in accounting, debit means left and credit means right.

In the recording process in a double-entry accounting system, there are two columns under each account. These are the Debit and Credit columns. A normal balance for Asset Accounts and for Expense Accounts is a Debit. A normal balance for Liability Accounts, Equity Accounts, and Revenue Accounts is a Credit.

This may not make sense yet, but I will explain it more in my next entry when I discuss the basic accounting equation. Thanks for visiting.
----Sincerely, Trevor Stasik.

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