Debit and Credit

It is important to remember the accounting equation has its right side and left side and must be equal.

To expound, the right side is further known as debit side and the left side is the credit side of any accounting element / account. Both sides must always be equal when recording a transaction.

The equation for debit and credit:

In any accounting element, its right side is the debit side and represented by Dr. or dr sign. While the left side is the credit side and represented by Cr. or cr sign.

To understand better the debit and credit, we must touch first what a business transaction is? A business transaction is an exchange of values.  The entity give away something of value in return or in exchange of taking something of value.  These values are the value received by an entity and the value parted with by an entity.

Debit

Debit denotes the value received.  A value received may increase or decrease the monetary balances of accounting elements. 

Credit

Credit symbolizes the value parted with.  A value parted with may increase or decrease the monetary balances of accounting elements.

Note that the words Debit and Credit may be used as verbs or adjectives.

Debit and Credit used as a Verb

• The account was debited with P8,000.00

This simply means that the amount of P8,000.00 was recorded or entered on the debit side or left side of the account.

•  The account was credited with 5,000.00

This simply means that the amount of P5,000.00 was recorded or entered on the credit side or right side of the account.

Debit and Credit used as an Adjectives

• The debit side of the account has an entry of P8,000.00

This means the left-side is being referred to and it has a recorded amount of P8,000.00

• The credit side of the account has an entry of P5,000.00

This means the right-side is being referred to and it has a recorded amount of P5,000.00

A debit to an account may signify increases or decreases depending on the classification and normal balance of the accounting element 

A credit to an account may signify increases or decreases depending on the classification and normal balance of the accounting element.

Knowing when a debit or credit and a value received or value parted with increases or decreases an accounting element is mastering the normal balances of an accounting element or account.

Click here to read discussions about the NORMAL BALANCES OF ACCOUNTS


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