Different Aspects of Debits and Credits

Wednesday, May 4 @ 09:05 AM
Charles Mouse - financial expert

You all would have heard the terms of debit and credit. They are very fundamental accounting terms. The concept of accounting is based on the debit and credit. Therefore, for book keeping these two terms are very much essential. The term debit and       term credit are two different aspects of accounts. Therefore, any term doesn’t have any kind of superiority. Those are very individual terms. However the application of these terms decides the effect of the terms. As we earlier described debit and credit is the basic foundation of accounting applications. Therefore, it is always advisable to be thorough about the implication of these terms before advancing in to the upper level of accounting.

Before describing the implication of the terms debit and credit, it is worthwhile to understand how that term appears on accounting statements. It is a very systematic thing. Debit is assigned for the assets and expenses transactions whereas the credit is assigned for the revenue and liability transactions. There is one fundamental ruling about debit and credit. If you post a debit entry for a one particular transaction you will have to post a credit entry against it. Thus, the effect of the transaction becomes nullified. The accounting transactions can be divided into few major categories. They are revenue, expenses, asset, liabilities and capital. Any kind of transaction should be able put in to one of those categories. Every transaction category has its own account. The account is a location where you record your transaction in accounting terms. These accounts are normally called as T-accounts. The general ledger is the place where other transactions are recorded. General ledger transactions are very important ones. Normally, if any transaction which have not gone through the companies cash accounts, recorded thorough the general ledger. The typical T accounts have two vertical columns. Normally the column in the left hand side is for the debit transactions while the other column is assigned for the credit transactions. The account balance is the next most important area. The account balance is normally called whether it is a debit balance or credit balance. The account shows a debit balance when the total debit amounts of the transaction exceed the amount of credit. Likewise the credit balance reflects the very same way. When the credit amount of the ledger account exceeds the debit amount you can say it as a credit balance. Debit is usually reducing the amount of liability and income whereas credits are usually reducing the expenses and assets. These are the natures of accounting entries. These accounting entries are usually called as double entries. When an entry is entered in to the debit side of a ledger account, the entry must have a credit entry to nullify it.

Accounting equation is another aspect that helps to identify the inherent approach of the double entries. The accounting equation has balanced every aspect of the financial accounting of an organization. Accounting is a technique based on the accounting equation. The simple accounting equation describes that asset is equal to the liabilities and owners equity of the organization. Based on that simple equation you can come to so many conclusions. One is about the liability of the organization. The liability of the organization is equal to the difference between the assets and equity of the organization. The debit side of the accounting equation is represented by the expenses and assets of the organization, while the credit side of the organization is represented by the liabilities and owners equity of the organization.

There are plenty of examples for the financial transactions. First, the students of the University of West Chester have to pay $ 718 monthly as their apartment rents. That is quite a significant and unfair decision. If your accounts have some kind of budgets then you will have to stick to resources provided. However, you change the name and go for an available one. Sometimes some basic transactions cannot be accommodating in that equation. You can easily get an idea about the application of the equation by login in to the web. The web has comprehensive accounts set’s. Full accounting sets have three major components. One of them is the income statement the other one is the change of equity, however, the most important one is the balance sheet.

However, in order to know the accounting application properly you may need to carry out some more involvement programs. However, lots of student’s starts follow a financial management course just after their secondary education. Therefore, the recognition for the accounting is very much higher than it was thirty years back.

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