[indusree.c]

How would you define debit and credit?

I have been studying accounting for the last two to three years and has studied almost all famous books of accounting like shukla and gupta,frankwood,pbp,pac papers etc but has not find a definition of debit and credit.debit credit rules are given in every book but how would you describe to a layman that what is debit and credit.

One of my accounting teacher,not a chartered accountant gave the following definition of debit and credit:
"when we divide a page into two parts,the left side is called debit and the right side is called credit."

I think that above definition is not correct.would some body explain to us the debit/credit definition.

[morgaine300]

Please do not double post. I've deleted your duplicate.

[morgaine300]

That definition is absolutely correct.

The words debit and credit come from Latin words that mean left and right, literally. The guy who created the double-entry system was a Monk, who presumably spoke Latin. He was not attempting to make fancy accounting words by doing this. He was quite literally saying the left and right sides of an account. Literally. If it's easier for you to start learning by simply calling them left and right instead of debit and credit, do it. That's all it means anyway.

Debit means the left side of the account. Credit means the right side of the account. Period.

The rules that go along with that are based on the accounting equation:
Assets = Liabilities + Equity

Assets are on the left and are debit accounts.
Liabilities and Equity are on the right and are credit accounts.

That's where it comes from - it's about left and right sides. It's a heck of a lot easier to understand if you realize that's really all those words mean and not try to make something else out of them.

Applying this does involve more than that. First you have to get what those rules mean. An asset account "being a debit account" means the balances of them have to stay on the debit (left) side. In order to accomplish that we must increase them on the left side. If I were to put an increase on the right side, I'd end up with a balance on the right side, which is not correct. So I put increases on the left side so that my balance remains on the left side. So assets increase on the left. All accounts decrease on the opposite side. So assets decrease on the right side. But the BALANCE should always remain on the left.

Same deal with liabilities and equity. Their balances must remain on the right side, and therefore we increase them on the right. And we decrease them on the left, but the BALANCE again must remain on the right side.

Revenues and expenses are based on how they affect equity. Revenues increase equity and therefore have to be credits, which increase equity. Expenses decrease equity and therefore have to be debits because that's what decreases equity.

So all the rules actually make sense. And yes, they are just based on the idea of left and right.

Applying that to transactions is a different matter altogether. That's cause you have to interpret the transaction, know what accounts are affected, what kind of accounts they are, whether you want to increase or decrease them... if you can get all that, THEN you apply the rules. But you have to get all that part before you can apply the rules. And that is a lot more complicated to just simply explain in a post. You kind of more have to deal with specific examples, learn how they work, learn where you're going wrong, gain some experience, etc.