Difference Between Debit vs Credit
The accounting numbers are recorded in two different kinds of accounts, which have an impact on the financial statements of an organization. Where a debit account is on the left-hand side and the credit account is on the right-hand side.
An accounting entry that increases either an asset or expense account or in other words decreases a liability or equity account is a debit entry. In a credit entry, an accounting entry that either decreases an asset or expense account or increases a liability or equity account is a credit side entry.
With a ‘credit entry being recorded against one account’ and a ‘debit entry being recorded against the other account’ are the two accounts which are being impacted always, whenever an accounting transaction is created.
The account has a debit balance when total debts are greater than total credit whereas the account has a credit balance when total credits exceed total debts. As a whole, the total number of debts should be equal to the total number of credits across the company when the trial balance is drawn up.
An account having debit balances are Interest expense, bank loan, bank account, and office supplies expense. The only account carrying a credit balance is the owner’s equity. Having a trial balance is a standard format to prepare financial statements used by accountants.
Example: The amount of cash on hand increases, if you debit the cash account. However, the amount of accounts payable liability decreases, if you debit the accounts payable account.
Debit vs Credit has different impacts across several broad types of accounts due to which the confusion arises about the inherent meaning of credit or a debit. The broad types of accounts are:
- Equity Accounts: A credit increases the balance and debit decreases the balance.
- Asset Accounts: This is the opposite of the above type of account.
- Liability Accounts: in which both increase the balance.
Rules governing the Debit vs Credit:
- While when credit is added to them they are reduced in amount.
- While when debt is added to them they are reduced in amount.
- In a typical business transaction, the number of debits must equal the number of credits. Otherwise, the accounting transaction is not balanced and is rejected.
Debit vs Credit Infographics
Below is the top 8 difference between Debit vs Credit
Key Differences between Debit vs Credit
Both Debit vs Credit are popular choices in the market; let us discuss some of the major Difference Between Debit vs Credit of accounting:
- Debit vs credit are the opposite of each other. When debt increases the account, in most cases, credit decreases the account and vice versa. Only when cash is being introduced to business as capital it becomes the most prominent exceptions.
- While debit usually denotes usage of one account, credit, on the other hand, denotes the source of another account.
- When the asset or expenses account increases and the liability or income account decreases, the account is debited. However, when the asset or expenses account decreases and the liability or income account increases, the account is credited.
- Both Debit vs credit are the cornerstones of a dual entry system where one account can’t exist without the other account.
- One is the effect of the other i.e. debiting one account is the effect of crediting another account and vice versa.
Head to Head Differences between Debit vs Credit
Here are some of the key differences between Debit vs Credit –
|The basis of Comparison Between Debit vs Credit||Debit||Credit|
|Related to||The left column of the ledger||The right column of the ledger|
|Meaning||For a transaction, Debit is use of value.||On the other hand for a transaction, credit is the source of value.|
|Application||It is used to express the decrease or increase in assets and expenses or liabilities and incomes.||It is used to express the decrease or increase in liabilities and income or assets and expenses.|
|In Journal||First account to be recorded||Second account to be recorded followed by the word ‘To’|
|Placement in T-Format||Always on the right side.||Always on the left side.|
|Equation||Assets = liabilities + equity is affected by debiting one account.||Assets = Liabilities + equity is affected by also crediting into one account.|
|Balancing Act||Debit alone can’t balance the whole transaction, under the double entry system.||Similarly, without the assistance of debt account, credit also can’t balance the whole transaction without the assistance of debt account.|
|Examples ‘Sales for cash’||As cash increases, as per accounting cash will be debited.||Similarly, as sales increases, as per accounting sales will be credited.|
While both are forms of notation that are used in accounting to have the balance in accounts. That is why in the world of accounting and bookkeeping the roles and definitions of debt vs credit are very different. Both Debit vs Credit can be used to measure your business transactions if you understand them well, across the various account types being used within your business.
Abbreviated as Dr. and Cr. All of the business transactions are primarily tracked as debits vs credits where debts are recorded on the left side and credits are recorded on the right side in your account ledger using a T account. The destination account or the account where money is going is debited on the left-hand side and the source account or the account where money is coming from is generally credited on the right-hand side. The total number of debits must be equal to the total number of credits, in order for a journal entry in the account ledger to be valid. In order for both sides of the journal entry to be equal sometimes, you will need to use multiple debits and credits for a given transaction.
Why the Debit vs Credit matters over time is an essential question. The Debit vs Credit in accounting have their own importance and both are equally relevant and allow the company’s financial activities to be easily understood.
This has a been a guide to the top difference between Debit vs Credit of accounting. Here we also discuss key differences with infographics, and comparison table. You may also have a look at the following articles to learn more –