Finance Credit

Learning Debits & Credits

 Most of the time, you hear people asking about the difference between debits and credits. Others would even ask what either of them really means because oftentimes, it can be very confusing. Learning about it can make things somewhat uncomplicated for you and can help keep you more informed when making any transactions in the banks or in the stores.

 There are some implications that debits mean negative while credits mean positive. This is definitely wrong because neither of it is bad or good. For every transaction that you make, there is a debit and a credit involved, which is also known as a double entry in accounting. When you deposit cash to your account, there is an increase in the liability of the bank; hence they credit your account. However, when there is a decrease in their liability, they debit their liability account. If the amount of the debits is more than that of the credits, your account has a debit balance. Conversely, if the sum total of the credits is less than the debits, then your account has a credit balance.

Another way to understand this is to imagine both of them in two separate columns, with debit at the first column and credit at the second. When you put in a figure on the first column, your account is debited, but when you put it on the second column, your account is credited. But of course, it also depends on what item has increased in value before it can be determined in which column it belongs. For example, it is considered as debits if asset and expense increase and as credits if they decrease. On the other hand, it is regarded as credits if liability, capital, and income rise and as debits if they fall.

 Your bank account or checking account is a debit account, whereas the debt that you acquire is a credit account. When you use a debit card to pay something, you are actually taking funds from the money you deposited in your account. You will only be able to spend the exact amount that you have and not more than that. Alternatively, when you use a credit card, the money that you spend comes from the bank that allowed you to borrow money, which you will subsequently be paying back in a particular time along with its interest rate. The sum you can use is equal to your credit limits. It can exceed the value of what you have in your debits but not the maximum of your credits.

Tips and comments:

 Both debits and credits are important points to be learned so as to avoid any misunderstandings in the future, especially when making transactions. It is necessary for you to know the difference between the two so that you can be more aware on the comings and goings in your account. This will also help you decide better on whether to use debit cards or credit cards and to figure out which one is more convenient for you.

By TheGoldenLotus, published at 07/06/2011
   Rating: 4/5 (10 votes)
Learning Debits & Credits. 4 of 5 based on 10 votes.

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