Debit and Credit ??

[Checkmated]

Very simple questions )

1) What is the definition of debit and credit ?

2) In BCOM we read that debit means "what we get" and credit is "what we lose", if this is true then why the expenses are debited bcz we r losing what we r debiting, similarly why we credit income as we are gaining it not losing it?

[kamranACA]

Dear,


Definition of what we get is debited and what we lose is credited is wrong as it shows one picture of the situation only.


If you are a student of CA or other professional body, I would like to refer you to the framework of IFRSs issued by IFAC /IASB.

Read it completely, carefully and comprehenisvely.


Your understanding would improve.


However, if you have posted this question for the sake of fun, then it does not need any comments, as it is a self assumed definition.


Don't much follow the definitions of those M. Com teachers who taught you guys in B. Com. They, in fact, personally don't know much about accontancy, in professional meanings.


Best regards,




KAMRAN.

[Astute Accountant]

<b>Answer 1</b> There is no universal definition of debit and credit.
<b>Debit</b> An accounting entry which results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in your bank account.
<b>Credit</b> An accounting entry system that either decreases assets or increases liabilities.

The best way to understand debits and credits is to identify two components of each transaction 1) what did you receive; and, 2) where did it come from. The debit is what you received, and the credit is the source of the item or service you received. For instance, imagine that you purchased a computer with your credit card. Since the computer is what you got, it's going to result in a debit to the asset account for your computer. The credit will be applied to the credit card liability account for the same amount also as a result of this purchase.

<b>Answer 2</b>
When an expense is incurred by a business, it must ultimately be paid for and the payment of the expense would result in the decrease of the “Capital”.

And...
The Increase in Capital is a CREDIT; while the Decrease in Capital is a DEBIT.

Hence an expense is to be DEBITED.


Hope that helps!

[Checkmated]

Kamran bhai i didnt posted it for the sake of fun as there are many other places for fun making on net )

Astute accountant, thanx so much for the detailed reply and yes that helps ) thanx again )

[Checkmated]

Another question , if expense is the decrease in capital then income is the increase in capital ??? thats why it is credited ??? plz tell me

secondly, can we say that capital is a liability ?? or it is different from "liability", in accounting equation why we write asset= capital plus liabilities, as capital is also a liability for the business, is it ??

[Astute Accountant]

<b>Answer 1</b>

<b>Income / Revenue</b> is the financial value of goods and services sold to customers.

Income increases Capital and that makes it a CREDIT entry.

Income is the opposite of Expenses and is, therefore, treated in the opposite way. On the other hand, it is treated the same as Liabilities.

Increases in Income are CREDITED to the appropriate Income account; while the decreases in Income are DEBITED.

<b>Answer 2</b>

<b>Capital</b> is the total of resources invested and left in a business by its owners. In other words, Capital is the amount owed to the owner of the business; by the business.

Yes, it is a liability to a business because it is what the business owes to its owner.

<b>Answer 3</b>

The whole financial accounting is based upon a very simple idea which is known as the accounting Equation. The accounting equation demonstrates that the Assets of the business are always equal to its liabilities plus Capital.

<center><b>Assets = Liabilities + Capital

=> Resources In the business = Resources Supplied ( By the owner + by the third parties)</b></center>

Where….
<b>Assets</b> = The actual resources that are in a business
<b>Capital</b> = What the business owes to its owners
<b>Liabilities</b> = What the business owes to the third parties

Therefore, the two sides of the equation will always have the same total because we are dealing with the same thing from two different point of views.


Hope that helps!

[Shahbaz]

Assalam o Alekum,
checkmated plz visit http//en.wikipedia.org/wiki/Double-entry_bookkeeping_system

Regards,

Syed Muhammad Shahbaz

[Schuaeb]

My advice for checkmated don't go for the logics of debit and credit as a beginner, try to take things as they are. Eventually, as your accounting concepts will mature everything itself will become crystal clear. The basic rules of debits and credits have very well been mentioned by astute.

[Azeem Shah Khan]

Hi Checkmated,

Debit Left column/side of a general ledger

Credit Right column/side of a general ledger

Thats it really, the other explanations our friends gave above are thr RULES OF DEBIT & CREDIT i.e. what goes in the right or left column.

Take my word for it, debit and credit do not mean more than this.

Kind regards

Azeem

[idreesdurrani]

Welcome Back Mr. Azeem!

Its been eternity since we saw a post from you

Let's hope we see some more contibutions from your side in the future.

Regards,

[Azeem Shah Khan]

Thanks for the warm welcome Idrees.

I will try my best to be more frequent although it only took me 2.5 years to move from 703 to 704 posts )

[Astute Accountant]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Azeem Shah Khan</i>
<br />Hi Checkmated,

Debit Left column/side of a general ledger

Credit Right column/side of a general ledger

Thats it really, the other explanations our friends gave above are thr RULES OF DEBIT & CREDIT i.e. what goes in the right or left column.

Take my word for it, <b>debit and credit do not mean more than this.</b>
Kind regards

Azeem
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Yes, ASK you're very right indeed! Debits and Credits are not more than that and the explanation of the rules of Debits and Credits was just to clarify the concept to the newcomer.


BTW are you still at London?

[Azeem Shah Khan]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Astute Accountant</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Azeem Shah Khan</i>
<br />Hi Checkmated,

Debit Left column/side of a general ledger

Credit Right column/side of a general ledger

Thats it really, the other explanations our friends gave above are thr RULES OF DEBIT & CREDIT i.e. what goes in the right or left column.

Take my word for it, <b>debit and credit do not mean more than this.</b>
Kind regards

Azeem
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Yes, ASK you're very right indeed! Debits and Credits are not more than that and the explanation of the rules of Debits and Credits was just to clarify the concept to the newcomer.


BTW are you still at London?



<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Yes, I am still in London.

[idreesdurrani]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Azeem Shah Khan</i>
<br />Thanks for the warm welcome Idrees.

I will try my best to be more frequent although it only took me 2.5 years to move from 703 to 704 posts )
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Yeah, The forum was surely missing your valued contributions.

I guess this gives us some indication of how busy a career in industry might be..if i remember correctly from your earlier posts, this was precisely the time when you switched to industry. Hope I got it right.

Having the experience of both the profession and industry, You may give us some useful insights on our thread

http//www.accountancy.com.pk/forum/topic.asp?topic_id=6078

Regards,

[davide1982]

To get basic understanding of how accounting really works I'd advice the following article

http//www.myhowtoos.com/en/at-work-howtoos/80-understanding-accounting-basics