difference-between-debit-and-credit

In this article we will define and focus on key  difference between debit and credit.Contents of  the page are as follows

Debits and credits are the common terms associated with accounting, whenever a transaction between two entities will occur one account will be debited and consequently, the other account will be credited.specifically, these two terms are related with double entry system of transaction.

 

What is Debit?

 

DEFINITION of Debit
  1. Total money borrowed by one person / organization/company from another person / organization/company is termed as debit.
  2. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
  3. When an amount of money is deducted from any account then that account is said to be debited. It is the value for the use (expenditure) at the destination.

 

What is Credit?

 

DEFINITION of Credit
  1. Total amount of money or resources owned by any individual, financial institution, organization or company (source) for specific purpose to be debited at the destination
  2. When an amount is deposited in any account, then that particular account is credited by that same amount.
  3. Debit and credit complete the whole system of finance in the company ,organization or company because finance is a closed system so there are a source and destination.So total amount of money owned by any institution or organization for specific purpose is said to be source or ( “credit “) is destined to be in cashed at “destination “(DEBIT”)

 

 

Debit vs Credit

Sr No. Debit Credit
1. When money is deducted from a bank account , then that account is said to be debited. When is money is deposited in a bank account, then that account is termed as credited
2. In banking terms ,Cash flows out of the  banking  system – money is taken out from bank account. In banking terms, Cash flows into the system or it’s the reserved cash with the system, that is the money is deposited into the bank account.
3. In terms of asset, Debit means liquefying of asset, means cash flows in.ex- if we sell our property, we get money for the property we sell(liquefying property). In terms of asset, credit means purchasing of asset, means cash flows out. Ex. – If we purchase any property, we pay to get that property.(cash flows out).
4. Financial system is a close system wherein amount of money going out of the system is termed as Debit (destination) Financial system is a close system wherein amount of money in the system is termed as Credit (source)

 

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