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What Are Debits and Credits?

by admin on May 24, 2015 Comments Off

The terms debit and credit used in accounting firm are quite confusing to many. This double entry accounting system was used and developed in the early 1400s in Italy. Experts believe that there are two components in every transaction. Debits are considered to be a component of every transactions that is responsible for increasing the assets and decreasing the liabilities and equity. On the other hand, Credits are components that are used to increase equity and liabilities and decreases assets.

Any financial impact in your business can increase our assets and accounts receivables. All of these transactions should be recorded, most importantly if you are dealing with accounting services. In order to do this you must have a basic knowledge and understanding on what embodies a debit or a credit. Through this, you will be able to make a financial record and journal for your business transitions. Let us say for example, it is Thursday afternoon, and your due for the car payment. Your car is considered to be as an asset, while your loan is called as a liability. If you have made a payment for your loan, then the payment has two components: a debit and a credit. So after you have made the payment, you have gained a larger portion for the value of your car. In addition, you have also increased the value of an asset which is your car, because it will be applied to your financial asset. In this kind of scenario, you have decreased the value of your liability which is the loan. An increase in your asset can be considered as a debit to your asset.

Even if you do not have a background for accounting, you cannot deny that you will be part of the accounting process in every transaction that you make. May it be at the groceries, shopping at a department store, or buying a gas, this are all an exchange of account values. Debit and credit is considered to be part of our daily lives, most especially to those who are in the business industry. These terms are much appreciated in a well situated manner. Most of us do not even think the effect of the cause and effect which are created by our purchases, simple money exchanges or shopping at a grocery store. But for the accounting professionals, everyday they encounter the terms debit and credit as they deal with accounting and bookkeeping services for an exchange of value between liabilities and assets.

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