{"id":283430,"date":"2024-10-02T16:28:11","date_gmt":"2024-10-02T04:28:11","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?page_id=283430"},"modified":"2024-10-04T12:54:07","modified_gmt":"2024-10-04T00:54:07","slug":"debit","status":"publish","type":"glo","link":"https:\/\/www.reckon.com\/au\/glossary\/debit\/","title":{"rendered":"What is debit?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_padding_phone=”0px||||false|false” hover_enabled=”0″ locked=”off” global_colors_info=”{}” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” sticky_enabled=”0″][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”0px||0px||false|false” hover_enabled=”0″ global_colors_info=”{}” custom_margin=”0px||0px||false|false” sticky_enabled=”0″][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description ” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

A debit is an entry into a bookkeeping journal that represents an increase in assets and expenses. <\/span><\/p>\n

Part of the accounting process for your business activity is understanding that debits and credits help provide insight into your financial statements<\/a> and reporting and help determine your finances.<\/span><\/p>\n

Debits vs. credits definition<\/span><\/strong><\/h2>\n

Accounts use debits and credits to represent the increase and decrease of different accounts.<\/span><\/p>\n

A debit increases assets and expenses and decreases liabilities, equity, and revenue. A credit increases liabilities, equity, and revenue and decreases assets and expenses.<\/span><\/p>\n

Keeping track of debits and credits can be tricky, so here is a quick cheat sheet to help:<\/span><\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2024\/10\/Debit-Credit-CS-2.png” title_text=”Debit Credit CS 2″ align=”center” admin_label=”Cheat sheet image” _builder_version=”4.27.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Definition description continued + Accounting equation” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

It is essential to know that in double-entry bookkeeping, a transaction affects at least two accounts, and we use debits and credits to show changes resulting from a transaction.<\/span><\/p>\n

The accounting equation<\/span><\/strong><\/h3>\n

The “accounting equation” is the foundation of accounting. The formula says a business\u2019s financial position (assets) is the sum of its liabilities and the owner\u2019s equity.<\/span><\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2024\/10\/Assets-Liabilities-Equity-block-asset.png” title_text=”Assets = Liabilities + Equity Block Asset” align=”center” admin_label=”Assets = Liabilities + Equity image” _builder_version=”4.27.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”OR” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

OR<\/strong><\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2024\/10\/A-L-E-Block-asset.png” title_text=”A + L + E Block Asset” align=”center” admin_label=”A = L + E image” _builder_version=”4.27.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Accounting equation” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

If we expand the equation to better understand a business\u2019s position, we add revenue and expenses to reflect our cheat sheet.<\/span><\/p>\n

Assets = Liabilities + Equity + (Revenue – Expenses)\u00a0<\/span><\/strong><\/p>\n

These accounts are what hold a business together; using debits and credits together gives us an accurate assessment of our business activities.<\/span><\/p>\n

[\/et_pb_text][et_pb_text admin_label=”Debit accounts ” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

Debit Accounts and Credit Accounts<\/span><\/strong><\/h2>\n

Each account serves a function and it is important to know the difference between them.<\/p>\n

Debit accounts<\/strong><\/h3>\n

These are found of the left side of the ledger account.<\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2024\/10\/Asset-account-block-images.png” title_text=”Asset Account Block Images” align=”center” admin_label=”Debit block images” _builder_version=”4.27.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Credit accounts” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

Credit accounts<\/strong><\/h3>\n

These accounts are found on the right side ledger account.<\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2024\/10\/Credit-accounts-block-images.png” title_text=”Credit Accounts Block Images” align=”center” admin_label=”Credit block images” _builder_version=”4.27.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Debits and credits example” _builder_version=”4.27.0″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

Once we understand debits and credits, we can apply them with a journal entry. For simplicity, we will ignore GST in this example.<\/span><\/p>\n\n\n\n\n\n
Date<\/strong><\/th>\nAccount<\/strong><\/th>\nDebit\u00a0<\/strong><\/th>\nCredit<\/strong><\/th>\n<\/tr>\n
01\/03\/2024<\/td>\nInventory<\/td>\n10,000<\/td>\n\u00a0<\/td>\n<\/tr>\n
\u00a0<\/td>\nAccounts Payable<\/td>\n\u00a0<\/td>\n10,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The above example shows that the monetary value of inventory (an asset) is a debit entry of $10,000 on the left-hand side of the ledger. We also see the money value is credited to accounts payable (a liability) on the right side of the ledger. It is important to note that your debits and credits must <\/span>balance.<\/span><\/strong><\/p>\n

The example also shows the fundamental nature of accounting and operating a business. An asset is what a company owns and is an economic benefit. A liability is what a business owes in debt and has obligations to pay now or in the future.<\/span><\/p>\n

Journal entries show the culmination of business activities and transactions for each ledger account. When these are accurately recorded, various reports and statements can be extracted for your financial accounting, such as: <\/span><\/p>\n