Difference Between Deficit vs Debt
Generally, a country’s revenue is not always enough to run the whole country itself. Most of the times, a country’s expenses for its development is not fully possible only with its own revenue. It always takes help of other countries or financial institutions. The effectiveness of a government & development of a country is mainly assessed with the help of deficit vs debt. Both Deficit and Debt may sound like the same. But both are different terminologies.
A deficit is a common word in the Income and Expenditure accounts. The word Deficit is defined as excess expenses spent over the revenues at a particular period of time. It denotes the quantum of the amount. It is used while preparing Budget Proposals by the state and Central governments. Generally, Deficit is a term used in Non – Profitable organizations. This Deficit is money sits in Balance sheet while preparing the yearly assessments. The time period differs for each Government organizations based on the year period. It can be a calendar year, Academic year, Final year, Assessment year. The deficit is a running statement for a particular period.
In this example, If Inflow < Outflow, it is Deficit. IF Inflow>Outflow, then it is surplus that is an excess of production or more than what is needed or used are left over after met with the requirements. During the Budget proposals, to reduce the Deficit in the coming year, certain budget plans can be put such as Increased Interest rate, Increased Tax % etc. However, when a deviation in the estimated budget happens, it always results in Deficit.
Debt means the Sum of money borrowed by Central government from other countries or Financial Institutions or banks to fulfill the Deficit. In simple terms, it’s a loan amount owed from others with obligations to repay it later in a regular interval. Debt is not a limited term for only Government bodies. It generally occurs in the level of Personal Banking itself. In addition to money, Personal Debt can be any items or services too. Debt can also be described as a sum of Deficit amount happened in previous years. In accountancy, Debt occurs in Profit and Loss Account and Balance sheet while preparing the Trial Balance, for a particular period of time for a particular person or a company or for state /central government departments.
Based on the Lenders, it is of two types.
- Internal Debt: If the Loan amount is taken within the same country itself.
- External Debt: Financial help is from outside the country such as International Financial Institutions, World Bank etc.
There is a common aspect about Debt in society. Debt means always Negative. “It’s not like that”. Based on its effect, it is of 2 types.
- Good Debt: Here loan amount is used as an investment which will grow in value and produce income for a longer period. We can take Housing Loans, Educational Loans etc. as an example
- Bad Debt: Here Owed amount does not generate any longer period income or grow in value. Best Example is the Credit card.
Head To Head Comparison Between Deficit vs Debt(Infographics)
Below is the top 9 difference between Deficit vs Debt
Key Differences Between Deficit vs Debt
Both Deficit vs Debt are popular choices in the market; let us discuss some of the major Difference Between Deficit vs Debt:
- The Deficit is defined as a deviation of a country’s income and its expenses. Whereas Debt is the sum of all Loan amount owed by one person or company or private/ public organizations from some form of money lenders.
- The deficit is an annual excess expenditure amount spent over its revenue. The Debt represents the total outstanding due amount which occurred as deficit over past years and present year new loan amount.
- If the money is spent pre-planned, at least Budget Deficit can remain the same as it is periodical and structural. But Debt cannot be the same as it is not cyclical.
- Deficit is for a single year but Debt is not for a single year it’s the accumulation of past and present Loan amount.
Deficit vs Debt Comparison Table
Below is the 9 topmost comparison between Deficit vs Debt
|Basis Of Comparison Between Deficit vs Debt||
|DESCRIPTIONAL||An Excess Expenditures spent over the revenue by Government in a particular period of time||Money that is borrowed or owned by one person or company or private/ public organizations from some form of money lenders|
|WORDS USAGE||A common word used in Income and Expenditure Accounts||A commercial word used in Accountancy|
|KEY DIFFERENCE||No owes and owns (Owns that is Debit which means what comes in. Owes means credit which means what goes out)||Has owes and owns|
|PRINCIPAL USERS||Happens in Non Profitable organizations such as Central/State Government departments.||Happens in Profitable Organisations such as an individual person, corporate bodies, private/public sector offices.|
|TIME OF OCCURRENCE||It is Periodical and structural. Periodical differs based on the year what the particular organization follows. It can be Calendar year (Jan – Dec), Financial or FISCAL year (Apr-Mar), Assessment year (Mar – Feb), Academic year (Jun-May).||It is not periodical and structural as it is the total summation of a Loan amount, Deficit in previous years, Interest on a Loan amount|
|RISK AND AVOIDANCE||It can be maintained as a constant amount or minimized for each year by following certain key plans such as Budget Preplanning, Increased Tax on Revenue, Increased annual Interest etc.||It will not be same and will fluctuate often based on the repay agreement.|
|CHAIN OF EVENTS||It’s a root cause because of excess expense annually over Revenue||It’s a consequence of excess Deficit over the past.|
|ASSESSMENTS||Annual Budget and its deficiency (DEFICIT) is assessed annually.||Sum of all Loan amount and Deficit amount in past years.|
|IMPACT||Cannot be classified its impact as positive or negative||Can be categorized as a Bad Debt and Good Debt|
Conclusion – Deficit vs Debt
It is always good to have less Deficit vs Debt for the Good economy of a Country. Having zero Deficit in the balance sheet and Debt in the country shows excellent Development of an economy around all countries and it is fully developed but which is not practical in real scenarios.
This has a been a guide to the top difference between Deficit vs Debt. Here we also discuss the Deficit vs Debt key differences with infographics, and comparison table. You may also have a look at the following articles to learn more.