In accounting, credit and debit refer to the two sides of transactions. Transactions are either recorded as a credit or a debit, depending on their nature.
Credits are gains in assets or losses liabilities. As an instance, if a business gets cash from a client, this is noted as a credit to the business’s cash account.
Debits are losses in assets or gain liabilities. A debit is made to the company’s cash account, for instance, when cash is paid to a supplier.
Credits and debits are not always used in the same way in every country. In some countries, credits are used to record increases in liabilities and debits are used to record decreases in liabilities.
There are a few rules to keep in mind when recording credit and debit transactions:
Credits always gain assets or loss liabilities.
Debits always loss assets or gain liabilities.
Credits and debits can be used to record either inflows or outflows of cash.
In some countries, credits are used to record increases in liabilities and debits are used to record decreases in liabilities.
The following are examples of credit and debit transactions:
A credit transaction would be recording a $500 cash inflow from the sale of office supplies.
A debit transaction would be recording a $500 cash outflow for buying of office equipment on credit.
A credit transaction would be recording a $100 increase in assets by the sale of goods on credit.
A debit transaction would be recording a $100 decrease in Accounts Receivable when a customer pays their outstanding balance.