Credit and debit is the basis of accounting

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Debit and credit are two terms that are specific to the job of an accountant. Moreover, the study of accounting science just begins with an explanation of the basics of double entry. Debit is the column on the left and credit is on the right. At first it looks very simple, but in reality it turns out to be much more complicated. From a university accounting course, students usually remember only that debits are debts that will be returned to us soon.

However, in real life, it turns out that there are passive accounts in which everything is reflected quite the opposite. And we haven't even started talking about active-passive accounts yet. Therefore, it cannot be unequivocally said that a loan is the debt of our enterprise to partners.

If we mean strictly active accounts, then when reflecting business transactions on them, the property rights of the enterprise or its costs are recorded on the left side. As for passive accounts, here the debit isbusiness revenue or costs. Therefore, it makes no sense to talk about the debit and credit of a transaction separately from the immediate account that the transaction affects.

If the amount on the right side of the balance sheet is greater than on the left, then in the case of active-passive and active accounts, this means that the value of the organization's property is decreasing. On the other hand, a credit balance on a passive account is possible only with an increase in the property or debt of the enterprise to its counterparties.

Let's look at what these accounting concepts mean on a general example, understandable even to a simple layman. Imagine that the movement from credit to debit is your journey from one point to another. Let's say we collected 5 liters of water from a well. In this case, the bucket is a debit. A loan is a well, the volume of water in which has decreased by 5 liters.

Other accounting terms are easy enough to understand. The opening balance is the balance of funds on a specific account at the beginning of the reporting period (year, month, quarter), and the ending balance is at the end of this period. Some scholars give these terms other names: "balance incoming" and "balance outgoing".

Finally, I would like to tell a story about a young accountant who managed to achieve success in life. This story has become a professional joke today. So, a graduate of one of the higher economic institutions got a job in an accounting office. He turned out to be goodspecialist, and his business quickly went up the hill. But he also had one oddity that none of his colleagues could figure out. Every day when he came to work, he unlocked the top drawer of his desk and looked in there before going about his daily business. Year after year passed, and he became the chief accountant, got his own office, but he did not refuse the habit of starting the working day in this way. Many curious colleagues tried to see what was in the box, but it was always locked. And then our accountant retired, and then, breaking open the top drawer of the desk, colleagues discovered that there was one single note on it, on which it was written in large letters: “CREDIT - on the right, DEBIT - on the left.”