The debit side of active accounts shows. Why are debit and credit necessary?

Many people find accounting difficult to understand, confusing and even mysterious! But nothing is impossible and it is possible to understand even such a complex subject. Let's try to understand two basic terms on which, in principle, the entire accounting system rests.

Origin of terms

The words “debit” and “credit” themselves came to us from the Latin language. The word "debit" means debt, and "credit" means trust. And from an accounting point of view, a debit means an increase in an asset (cash, materials, fixed assets) and a decrease in a liability (loan obligations, retained earnings, authorized capital), and a credit, on the contrary, means a decrease in an asset and an increase in a liability. That's right, it's not just the income and expenses of the enterprise. It is worth knowing that, unlike the banking sector, where borrowed funds are called loans, the accounting term “credit” is pronounced with the emphasis on the first syllable!

For the first time, the double entry system in accounting was proposed by the mathematician Luca Pacioli back in 1494. In fact, he did not invent anything new - he simply systematized the accounting system that was then accepted among merchants. In a nutshell, double entry means that one transaction action is reflected in two accounting accounts at once, using debit and credit.

Let’s immediately clarify that the company accounts for all assets and liabilities in accounting accounts regulated by the Chart of Accounts, approved back in 2001. In this Plan, each asset and liability is named and has its own number. Materials are accounted for on account No. 10, settlements with customers - on account No. 62. Accountants say "10th account" and "62nd account". All business transactions of the company related to its activities are reflected in these accounts using postings. What is wiring? This is exactly the same double entry using debit and credit of these accounts!

Debit and credit for dummies using an example

Let's try to understand these concepts. Let's take a separate business transaction, the example of which will clearly show how double entry is made and how debit and credit are used.

For example, an organization paid a supplier for a shipment of goods. It is obvious that her accounts receivable, that is, the amount that third parties or organizations owe her, has increased - the part of the funds transferred from the current account was debited by the accountant to account 60, “Settlements with suppliers and contractors.” At the same time, the company lost part of its assets, because a certain amount left the current account, and the asset in account 51 – “Current Account” – decreased.

Accounting is a strict, clearly structured system that does not tolerate discrepancies. Since ancient times, it has been the case that when recording a business transaction, the posting always looks like this: first there is a debit, then a credit. Now accountants actively use computer programs, but even there, when opening a business transaction, you can easily observe this posting structure - in the table we will see a debit on the left and a credit on the right.

So, our posting will look like this: Debit 60 Credit 51, “Payment to supplier for goods.”

Next, the company received the paid goods from the supplier. What happened? First of all, the asset of the organization called “Goods”, account 41, increased, because the quantity of goods in the warehouse increased. And at the same time, the supplier’s receivables to the company decreased - again, account 60 appears, but for a loan.

Debit 41 Credit 60, “The supplier delivered previously paid goods.”

This is how the double entry system works, and you can clearly see how the debit and credit of accounts are recorded.

Debit and credit are concepts that are used in accounting practice. Debit and credit are usually called certain standardized instruments or methodological techniques used by the accounting system.

The tools under consideration allow us to reveal and analyze the possibilities of the main economic, business and other processes in the activities of an enterprise, assess the direction of such processes, and establish certain boundaries or frameworks for such opportunities.

In the activities of any organization (credit, banking, among others) there are two types of accounts: active and passive accounts. Passive accounts record attracted resources, and active accounts, respectively, record funds that already belong to the organization, but are located outside the company.

For all active type accounts, the debit will be an income, and the credit, accordingly, will be an expense. Passive accounts will define: credit as income, and debit as expenditure.

More about the financial concept of Debit

Somewhat simplified, debit can also be called the property of an organization, or its property rights taken into account in the accounts. Usually:

• Active, as well as active-passive accounts of an enterprise consider an increase in debit as an increase in the property of the enterprise or an increase in its property rights.
• Passive accounts describe an increase in the debit side as a decrease in the organization's property (equity).

Financiers also distinguish the concepts of debit balance, calculated as of a specified date, and debit type turnover, calculated for a certain time interval.

• The debit balance of an enterprise is considered to be a certain amount of cash that estimates the value of the organization’s own property or property rights. The balance is fixed at a certain point in time, a clear date;
• The debit turnover of an account is the total monetary value of business-type transactions carried out over a specified time interval, which led to an increase in property or property rights, and possibly to a reduction in the source of property formation.

If we talk about the movement of company funds, then active accounts record the movement of funds from credit to debit, and passive accounts, on the contrary, from debit to credit.

If the reflection of business type transactions describes the presence of debit turnover in active type accounts, in fact there is an increase in the recorded amounts. If the presence of debit turnover is observed in passive type accounts, in practice the amounts taken into account are reduced.

Financial concept loan

Financiers call the right side of accounting accounts a loan. When there is an increase in credit in active or active-passive accounts, in practice the company is faced with a decrease in the value of its own property, as well as existing property rights.

If credit grows in passive accounts, the company may observe an increase in its own funds or an increase in the sources of their formation.

Differences between debit and credit in simple words

Without being an accountant, it is easy to get confused about the concepts of debit and credit. In fact, remembering the differences between the concepts under consideration is quite simple.

In fact, accounting simply replaced the terms income and expense with the more modern debit and credit. The main differences between the concepts under consideration are as follows:

• In accounting entries, debit is always the left side, credit is only the right side;
• By studying the debit of accounts, business owners can see when and due to what the organization’s capital increases. While, looking at credit accounts, business owners estimate how much money is spent on increasing their own assets;

You can also understand the main differences between the concepts by resorting to the banking terms debtor and creditor. In the financial sector, a debtor is usually called a business entity that has a certain debt to the accounting structures.

Financiers call a creditor a subject of monetary relations in relation to which business entities have debt obligations.

On the Internet you can find a lot of wording describing “credit” and “debit”, which are often difficult to understand. Today we will try to tell you in a more understandable language what these concepts mean and where they are used.

To begin with, just remember that “debit” is when someone owes you, and “credit” is when you owe it. This understanding is convenient for perception, and is also not far from the truth, because the word "debit" in Latin means "debtor".

An analogy can be drawn with modern banking services, which are close to ordinary consumers:

• debit card or account - opened at a bank in order to use your own funds. For example, to receive wages from an employer, benefits and payments from the state, to pay for non-cash purchases in online stores, etc.
• credit card - in rare cases, you can use it to keep your savings, but it is mainly used to obtain borrowed funds from a banking company. The amount available to you will be limited by a limit, and you will be charged a certain percentage for using it.

These terms were introduced long ago to to replace the concepts of “income” - “expense”. Accountants divide the account into:

1. Active - this is the name given to the actual funds of the organization or bank itself. It is used to control the funds and property at the disposal of the enterprise.
2. Passive - this is the name given to all funds received by the enterprise. The dynamics of funds and debts are displayed here.

Debit is the left side of accounting. With active accounting, the account increases, and with passive accounting, it decreases.

The right side of accounting is called credit (not to be confused with the loan that is taken from the bank). With active accounting, the account decreases, and with passive accounting, the account increases.

How double entry is formed during accounting is clearly demonstrated in this picture:

They are mutually opposite terms and, accordingly, have opposite meanings:

• Debit shows us by what amount our funds are increasing, that is, this is the cash flow plus the sum of everything that the organization has: tangible assets, cash, fixed assets.
• Credit shows us our expenses, plus everything that allows the organization to have what it currently has in debit.

Using the state of these economic terms on a particular account, it is possible to draw conclusions about the results of the enterprise. It is with their help that every transaction that occurs on the company’s cash accounts is posted.

Mostly accountants and economists work with them., ordinary consumers do not need such knowledge. If you want to start working on this topic, then you will need to undergo appropriate training, for example, accounting courses at enterprises.

We hope that we have clarified your understanding of the terms debit and credit, and you now know what they are. The basics of bookkeeping and double entry bookkeeping are covered in detail in this video.

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Debit And credit- standardized methodological accounting techniques. They reveal the possibilities of economic processes and their direction, and they also set boundaries for these possibilities.

Debit- left side of the ledger account. For active and active-passive accounts, an increase in debit means an increase in the property or property rights of the organization. For passive accounts, an increase in debit means a decrease in the organization's own funds (sources). Comes from Lat. debet, which means "he must". The Latin word for this term is debitum - “debt”.

Credit- the right side of the ledger account. For active and active-passive accounts, an increase in credit means a decrease in the value of property or property rights of the organization. According to passive accounts, an increase in credit means an increase in the organization's own funds (sources).

There are two types of accounts: active and passive. Passive means borrowed funds; active - placed funds of a company, enterprise or bank. For active accounts, debit is income, credit is expense. For passive ones, credit is income, debit is expense.

Basic information

The left side of the accounting account, denoting (to simplify somewhat) the property or property rights of the enterprise in the context of the facts recorded in the account.

There are concepts debit balance invoices for a certain date and debit turnover accounts for a certain period of time.

Debit balance- monetary assessment of the value of property or property rights of an enterprise recorded in the account at a certain point in time.

Debit turnover- the total monetary value of all business transactions over a period of time that led to an increase in property/property rights or a decrease in the source of property formation, which are recorded on the account in question.

In active accounts, funds move from credit to debit.

In passive accounts, funds move from debit to credit.

Strictly speaking, when reflecting business transactions, debit turnover in active accounts means an increase in the amounts taken into account (active accounts usually take into account the property or property rights of the enterprise or costs). Debit turnover in passive accounts means a decrease in the amounts taken into account (passive accounts usually take into account revenue and various types of debt of the enterprise).

Frequently used term debit posting has no independent meaning; the debit of a transaction means the debit of the account that the transaction affects.

The table below indicates on which side this or that item increases or decreases (in this moment):

Notes

Links

• // Encyclopedic Dictionary of Brockhaus and Efron: In 86 volumes (82 volumes and 4 additional ones). - St. Petersburg. , 1890-1907.

Wikimedia Foundation.

2010.

See what “Debit and credit” are in other dictionaries: magazine "Debit and Credit" - magazine "Debit and Credit" (1914) Monthly reference magazine of finance, trade and industry, published in St. Petersburg. Its publisher was V.I. Riedel. The ideas of the magazine "Debit" were taken as a basis: exposing... ...

Technical Translator's Guide MAGAZINE "DEBIT AND CREDIT" - (1914) monthly reference magazine of finance, trade and industry, published in St. Petersburg. Its publisher was V.I. Ridel. The ideas of the magazine Debet were taken as a basis: exposing criminals and debtors. Only six came out in a year... ...

Great Accounting Dictionary

Accounting Key concepts Accountant Accounting Revolving balance sheet General ledger Credit Debit Cost Double salary ... Wikipedia - (lat. he believes) 1) in accounting means: “I must”, or “I have to issue” 2) the right expense page in the accounting books. Dictionary of foreign words included in the Russian language. Chudinov A.N., 1910. CREDIT 1) the ability to borrow money,... ...

Dictionary of foreign words of the Russian language

Ushakov's Explanatory Dictionary Dictionary of foreign words of the Russian language

1. CREDIT [re], credit, husband. (lat. credit he believes) (thumping). The account of a person or institution lending something; ant. debit. Debit and credit. 2. LOAN, loan, husband. (lat. creditum debt). 1. units only Commercial trust; provision of goods... credit - and credit. In meaning “account of debts and expenses” credit. Debit and credit. In meaning “providing valuables (money, goods) on credit; confidence; a sum of money released for something" loan. Issue goods on credit. Use credit. Loans for... ...

Credit Dictionary of difficulties of pronunciation and stress in modern Russian language - (Credit) A loan is a transaction for the transfer of material assets on loan. The concept of a loan, types of loan, registration, conditions and issuance of a loan Contents >>>>>>>>>>>> ...

Investor Encyclopedia

1. CREDIT [re], credit, husband. (lat. credit he believes) (thumping). The account of a person or institution lending something; ant. debit. Debit and credit. 2. LOAN, loan, husband. (lat. creditum debt). 1. units only Commercial trust; provision of goods...- I. (basym 1 їektә). Isәp hisap kenәgәsenen chygymnar yazyla torgan yagy; kirese – debit. II. CREDIT – (basym 2 їektә). 1. Өleshlәp tүlәү sharty belәn bilgele ber srokka goods satu yaki akcha һәm matdi kyimmәtlәrne percent alu isәbenә berychka birep… … Tatar telen anlatmaly suzlege

When applying for a loan, bank clients see in the agreement the words: debtor, creditor. It does not require clarification that they are derived from the terms debit and credit. What are these words? Where did they come from?

Back in the Middle Ages, artisans and merchants kept barn books in which they recorded their expenses and income. Everyone recorded the turnover in the way that was convenient for him, but mostly page by page: on the spread of the book, income (expense) was recorded on one side, and expense (income) on the other. Many noted: I owe, they owe me.

This continued until the Italian Luca Pacioli, the “father” of modern accounting, proposed in his main work, in the chapter “Treatise on Records and Accounts,” to divide the page into two parts. One part, debit (literally translated from the Latin “debet” means “he must”), recorded all receipts, and the credit showed a decrease in equity.

In this case, each figure had to be written down twice: on the right and left sides of the balance. Such an entry is called a double entry and is accepted as the basis in modern accounting.

Debit is the left side of the balance sheet. Shows the amounts that the owner of the company maintaining this balance sheet should receive (or has already received) into his bank account, as well as any other receipt of material resources.

Since it is quite difficult to run a business today without borrowed funds, two types of accounts have appeared in accounting: active and passive.

Active accounts account for all the funds owned by the company, while passive accounts account for their sources (authorized capital, loans, etc.). Therefore, active accounts show the movement from credit to debit.

Here, debit shows the growth of property (raw materials, supplies, equipment, money in the cash register or in bank accounts, etc.). On passive ones, on the contrary, from debit to credit, which means a reduction in the company’s debt to the supplier of goods, the bank (loan repayment), etc.

What is a loan

The term "credit" has Latin roots. Translated from Lat. "creditum" means "debt", "loan". In modern Russian it is used in four meanings. It all depends on which syllable is stressed. If we say credit, then we mean financial relations:

• A certain type of economic relationship when some value (money or property) is transferred to another person on the basis of repayment. A good example is a bank loan to its client;
• Expenses of the enterprise (firm), the amount of cash deductions, the amount of the loan (credit money) issued by the bank to the borrower.

When the stress is on the first syllable - credit, the word is used:

• In accounting. Represents the right side of the balance sheet, where the company's liabilities are reflected;
• In modern education systems in the West. Means credit (used in the Carnegie credit system).

What role do they play?

Debit and credit are the fundamental elements of modern accounting. Thanks to these two terms, the manager (owner) of an enterprise (organization) has the opportunity to:

• Promptly receive objective and accurate information about the economic processes occurring in the structural unit in which accounting is maintained. The data obtained allows us to make certain management decisions aimed at stabilizing the operation of the enterprise;
• Find reserves for the growth of the organization’s property (monetary) assets;
• Show the results of business activities (profit or loss) to determine the tax base;
• Present financial reports to potential investors, partners, financial institutions when applying for loans;
• Audit, which is important for regulatory authorities, as well as when placing securities (shares) on trading platforms (exchanges).

If we describe what debit and credit are in simple words, for dummies, then debit shows the receipt of funds at the disposal of the organization. Sources of income can be:

• payment for products sold or services provided;
• return of funds issued in the form of a loan;
• receipt of raw materials and materials;
• acquisition of fixed assets: machinery, machine tools, equipment, etc.

Credit (not to be confused with loans issued by credit institutions) is a company’s expenses. They consist of:

• costs of raw materials, supplies, electricity and heat;
• wages for workers and management personnel;
• transportation costs;
• amounts returned to the bank for loans and interest on them;
• costs of servicing bank accounts;
• taxes and various fees.

The concept of double entry in accounting

Double entry is a special technique for modern accounting. It consists of reflecting all transactions simultaneously on both credit and debit. The accounts posted should show how much went out in one place and how much came in in another. This allows economists conducting an analysis of the financial and economic activities of the reporting enterprise to see the paths of inflow and outflow of funds.

In this case, the basic rule of double entry is the principle of equality of the left and right sides of the balance at any time - the amount of debit entries must converge with the amount of credit entries. This says two things:

1. Entries for debit and credit must be made simultaneously and the amounts must be the same. Therefore, changes in both parts of the balance sheet do not violate the equality of assets and liabilities;
2. If there is no balance, there is an error in accounting. To eliminate the error, the debit and credit entries are reconciled.

This accounting method allows the financial position of the company to be reflected through the balance sheet.

Usage example

The use of debit and credit in accounting can be illustrated with a specific example.

Limited Liability Company (LLC) "Cascade" purchased components for the main production in the amount of 40,000 rubles. Payment was made from the current account by payment order. After 4 days, the materials arrived to the buyer. In this case, the wiring will be as follows:

1. On the day of payment, the accountant is obliged to write down in the chart of accounts: Credit 51 (current account) 40,000 rubles, the company’s assets have decreased, Debit 60 (settlements with suppliers) 40,000 rubles. – the recipient of the money owes Cascade LLC materials for the transferred amount;
2. On the day the materials are received, the accounting department makes the following entry: Credit 60 (settlements with suppliers) 40,000 rubles. – the supplier paid the company, Debit 10 (materials) 40,000 rubles

From the above records the following conclusions can be drawn:

• at any given time, the company's assets were equal to its liabilities;
• the supplier carried out mutual settlements with Cascade LLC, as evidenced by the entry: Debit 60 in the amount of 40,000 rubles, Credit 60 in the amount of 40,000 rubles;
• There was a change in the structure of the company's assets - the current account decreased by 40,000 rubles, but the cost of materials increased by the same amount.

What does it mean to “reconcile debit with credit”

Everyone has probably heard this expression more than once. However, not everyone knows what it is.

We have already discussed above what debit is and what credit is, as well as the essence of double entry. Therefore, the expression is briefly explained as follows: the amount of debit turnover for each account, taking into account carryover balances, must necessarily coincide with the amount of credit entries. This means that there must be a balance between the expenditure and receipt of funds at any given time in the system of accounts. If this is not the case, there has been an error in accounting.

For example, at the beginning of the month, account No. 10 (materials) had a balance of 22,000 rubles. This is a classic debit. Within a month, materials were received in the amount of 91,000 rubles. – this is the amount of transactions for the month. The total by the end of the reporting period should be 113,000 rubles. However, within a month, materials worth 104,000 rubles were sent to production, as evidenced by the amount of loan transactions.

If the financially responsible person submitted a report on the balance in the warehouse of materials in the amount of 9,000 rubles, then all operations were performed correctly and the debit balance is 9,000 rubles. If the balance is higher, then there is clearly an accounting error. If the balance is lower, then there are two possible reasons:

• Accounting error;
• Theft of materials from the warehouse. In such cases, to obtain a balance, the amount stolen is withheld from the accountable person, resulting in assets still equaling liabilities.

What is balance

The most interesting part in accounting is calculating profit or loss. We talk all the time about equality between the left and right sides of the balance sheet. How much came to the company during the reporting period, so much should go out. Otherwise, the records were kept unreliably. Where will the profit come from so that the balance between Debit and Credit is maintained?

The answer is in the balance (from Italian: saldo - balance) of the balance sheet. It represents the difference between income and expenses for the reporting period.

The excess of income over expenses gives profit. If the calculation gives a negative result, we receive losses. To maintain equality between the left and right sides of the balance sheet, the accounting system has entry No. 99 (profit or loss). This is how equality is maintained.

In the 90s, when the Soviet Union collapsed and enterprises were not privatized, there was a common phrase among accountants: “balance-buldo,” where the bulldo showed the excess of income over expenses and went into the pockets of management. But the phrase “balance-maldo” spoke of losses.

Airplane is a slang term for the most convenient form of withdrawing balances. It is a cross with a horizontal stripe raised to the top of a vertical line, which resembles a stylized airplane figure. Looks like that: