All system of accounting It is made up of two parts or columns, where debits and credits have a place. The debit is on the left side and the credit is on the right. These two values are used to record the amounts referring to the transactions carried out by a company on a specific date.
Difference between must and have
To better understand the concept of debits and credits, we will explain each of the terms:
- The purpose of the debit is to record in financial terms all those transactions that imply that a company or an account enters or receives.
- The credit presents the purpose of registering all those operations that represent the exit or delivery of an account or the company. It is made up of the company's liabilities, being the same obligations that the entity has in force and that suppose a reduction of the economic benefits in the future.
Easy explanation of debits and credits
Linked to the meaning of must and have, a couple of concepts have to be addressed, which are charging and paying. Charging an account is when a transaction is recorded in debit, while crediting refers to the recording of a transaction in credit.
It must be clarified that in any Accounting seat, an entry in the debit of one account implies that an entry must also be made in the credit of another account. This is called double entry and is a staple in accounting.
On many occasions doubts arise about where an entry should be registered. To clarify, income and debits are included in debit, while expenses or credits are noted on the credit.
In summary, you have to know that:
- Asset accounts will increase in value through debit entries and reduce their value through credit entries.
- Liability accounts will increase their value through credit entries and will decrease their value through debit entries.
How to keep company accounts?