The correct use of debits and credits is extremely important when it comes to basic accounting practices. If your knowledge and ability to implement these elements is decent, it will be a great way to advance in the accounting field. Therefore, in turn, if you do not have a good understanding of these concepts, it will be very difficult for you to advance in a career as an accountant. So, as you can see, the use of the techniques is very important, which is why I have decided to help explain them as a way to broaden your knowledge.

The first thing to do is explain what is meant by debits and credits. Debits and credits are reserve holding terms for accounts, as each account we handle has a debit side and a credit side. These debits and credits are recorded in two separate columns with the debit on the left side and the credit on the right side. When separated, it allows the beads to add up and stay neat. The main use of debits and credits is to change the balance of an account. Knowing which side of the account to put recent activity on is very important, so you have to memorize which side is up and which side is down to keep your books up to date. It’s also important that you know your debits and credits so you can be quick and efficient, as well as keep up with your accounting so you can also keep your business or job online.

The accountants will say things like I added five hundred dollars as a debit to the cash balance. For all asset accounts like Cash, they are increased on the debit side of the account, so when you add money to the account, it is placed on the debit side in the general journal. Whereas if you spend cash to buy something, it will say credit the cash account because that reduces the total amount in the account. It is very important to keep up with the accounts and increase and decrease the totals on the correct side of the column so that all asset accounts increase their total on the debit side and decrease their total on the credit side. Asset accounts include cash; accounts receivable, land, or any item of economic value owned by an individual or corporation, especially those that can be converted to cash. In the case of liabilities, they increase on the credit side and actually decrease on the debit side of the account. Liabilities may include accounts payable, taxes payable, unearned income, and notes payable; The actual definition is a debt assumed by a business entity as a result of its lending activities or other tax obligations. The last part of the balance sheet equation is owner’s equity, which has the same increase (on the credit side) and decrease (obviously on the debit side). Owner’s equity is the owner’s rights to the assets of the business; includes Capital and Giro accounts (also known as personal account, money used for personal purposes). Owner’s equity also includes the Income Statement which contains all income and expense accounts. Income increases on the credit side and decreases on the debit side. Expense accounts are the opposite of income accounts in that they are added using the debit side and taken from the credit side of the account. To see an example of the use of debit and credit accounting, let’s say you borrow cash from a local bank loan. To record it on your books, you’d add cash on the debit side because you’re adding to the total, and you’d also add it on the credit side of the loan payable as a liability. When you do something with a debit account, you also need to do something with a credit account. That’s why when you added to the debit for cash, you also had to do something with a credit, so you add a loan on the liability. That was a very basic example, but it shows you how accounting debits and credits were used in early accounting journals.

As you have read, the use of debits and credits is very important as a basic accounting principle. Using debits and credits in the right way is the most basic form of accounting in accounting without them you can not do much more. You need to be aware of these before everything else you do in accounting without them you really can’t do any other form of accounting within the accounting field. I hope this article has helped you with the basic use of debit and credit accounting.

By: Bill McDougall