Learning Accounting and Bookkeeping Basics
Difference between Credits and Debits
This article will help you understand an important distinction in accounting
and bookkeeping - the difference between a credit and debit.
When you deposit money in the bank, the cashier will tell you "I'll
credit your account." From that experience, most people assume that cash
is a credit, and so credits are good. That is further reinforced when reductions
in the accounts are referred to as debits. Besides, if you remove the "i"
"debt." So, debits seem bad.
Unfortunately, the conditioning we receive at the bank is causing real confusion
in the accounting class. Why? Because in accounting we understand that the
bank account is a debit account, and that debts are credit accounts - the
opposite of what most people expect. That is why your checking account card it referred to as a debit card.
In fact, debits and credits are neither good nor bad. Each transaction, whether
it be a good transaction (deposits), or a bad transaction (bills) has both
a debit and an equal credit. That's why they call it "double-entry accounting."
When the cashier is telling you he or she will "credit your account",
they are also entering a debit for the same amount that they are not telling
you about. The same is true for the debits to your account - there is also
a credit being made at the same time.
I find the best way to understand debits and credits is to identify the two components
of each transaction.
Universal Accounting is a Accounting School that can teach you how to understand the components of each accounting transaction. The Professional Bookkeepers Course from Universal's is a home study video course perfect for brushing up on your accounting knowledge or starting your own business as an Accountant or Bookkeeping professional. Debits and Credits are only the start of some of the things you will learn with this training.
Take our Accounting Quiz to test your knowledge and see what you will learn in our Professional Bookkeeper™ Course.
The Professional Bookkeeper™ Course also makes it easy with examples, graphics, photos, and illustrations. For instance for Debits and Credits examples would be given like this:
Debit & Credit example:
You can learn to understand to identify the two basic components of each transaction:
- what did you get?
- where did it come from?
The debit is what you got
and
The credit is the source of the item you received.
Let's imagine that you purchase a computer with your credit
card. Since the computer is what you received it's going to result in a debit
to the asset account for your computer. The credit will be applied to the
credit card liability account for the same amount.
The banks tend to confuse us because they are telling us the entry to their
liability account. When you deposit money in the bank, their liability to
you increases. Since liabilities are credit accounts they are crediting our
account. When they reduce their liability to us, they are debiting their liability
account.
So, if you can identify what you received and where it came from in every
transaction you have debits and credits mastered.
This is only one of the hundreds of topics we cover in our Professional Bookkeeper™ Course
To learn more about the Professional Bookkeeper™ Course signup for our weekly
Accounting Newsletter.
This professional training will prepare you to understand debits and credits and all parts of the accounting process.
This training will even prepare you guide you through how to start your own Accounting and Bookkeeping Business and make $30-40 an hour.
See what our Students are saying about our courses.
Other Articles about learning accounting and bookkeeping:
Basic Accounting
What is the difference between an accountant and bookkeeper?
Bookkeeping Training and Accounting Training are Different
Financial Analysis- the accountants tool
Accounting Training: Consider your Options
Starting a Small Business
