In the world of accounting, there are certainly lots of terms. Of the many terms in accounting, one of them is debit. Some people may not know what debit is, especially for those who are not majoring in accounting. You don’t need to worry because this article will discuss more about debit. So, read this article to the end, Mudalovers .
Definition of Debit
In the realm of accounting, a debit is a decrease or increase in money in a savings account. Often debit is also abbreviated as DR which is a term in Latin, namely debere , which means the opposite of credit.
Debit is an account or code and asset whose value can increase if debited. Meanwhile, the value of equity, liabilities and income will decrease if they are debited. Debit also means a note in the bookkeeping in order to reduce deposits in a bank account.
An example is the bank debiting a savings account by reducing a certain amount of funds and carrying out certain transactions. In addition, insurance companies debit accounts from savings in order to pay insurance policies.
Another example of debit, is at a bag shop that sells bags for 20 million rupiah, then they want to debit the account from the shop’s cash for 20 million rupiah and credit the bag inventory also for 20 million rupiah. That means, currently the company has 20 million rupiah more in cash and cash, and has 20 million rupiah less in the form of stock bags.
Based on the explanation above, a debit card is able to give the bank the authority to withdraw a certain amount of money from the customer’s account electronically for various payment needs and certain transactions.
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Benefits of Using a Debit Card
Using this debit card also has certain advantages, including:
1. Easier to Use
Debit cards are very suitable for customers who have sufficient funds and need a short-term loan. Even easier to use if you need cash at any time. The simplest example of a debit is when you withdraw money from an ATM machine where you will also receive a transaction notification via SMS stating that a debit has occurred.
In the business world, debit is also used in the case of selling merchandise to customers as cash or can also be exemplified by salary expenses when paying employee salaries. Meanwhile, the accounts included have debit balances such as bank accounts, bank loans, office expenses and interest expenses.
2. To prepare a budget
As a tool that can be used to prepare a budget. Some methods that can be used are to separate accounts such as savings accounts, investments and special spending accounts.
3. Can monitor the money held
Like credit cards, debit cards are also accepted by business owners with less self-identification and supervision than personal checks, making transactions faster.
4. No Additional Fees
Unlike credit cards, which charge higher fees and high interest rates when cash advances are obtained, debit cards themselves can be used to get cash from ATMs or various PIN-based transactions without additional fees, other than foreign ATM fees.
5. Safer to use
Using a debit card also tends to be safer and more practical, without the need to carry large amounts of money if you want to withdraw money from a savings account, and there is no need to bother going to the bank and queuing for a long time. Just go to an ATM, which is available everywhere, then withdraw money from the ATM.
Difference between Debit and Credit
Every time a transaction is made in accounting, at least these two accounts will then have an influence or will be affected. These two accounts are a debit account and a credit account. These two transactions will be recorded in one debit account and one credit account.
In it, there is also no limit on the number of accounts recorded in each transaction, but there will be no less than two accounts. The total transactions that can be recorded in credit and debit accounts for each transaction activity must also be the same value and match each other, so that the value of this transaction can be considered balanced .
If there are unbalanced transactions, this will also have an impact on the financial reports that will be prepared later. Therefore, the use of credit and debit is important in the two-column transaction recording format.
So, the differences between debit and credit that you must understand include the following:
- Debit is a column on the left side of the general ledger account, while credit is on the right side of the general ledger account. The recipient’s account will also be recorded in a debit account, while the giver’s account will be recorded in a credit account.
- All incoming financial transactions will be included in the debit account on the balance sheet. Meanwhile, any transactions that come out will be recorded in the credit account.
- In the income statement, all expenses and losses will be recorded in credit, while income will be written in credit.
- This increase in the amount of debit is due to an increase in cash, machinery, inventory, land, equipment, buildings, insurance, etc., while an increase in credit can be caused by an increase in funds for shareholders, retained earnings, costs, bank loans, debts, etc. etc.
Based on the explanation above, it can be concluded together that the differences between credit and debit are as follows:
- Generally, credit is used to record an increase in a sum of money, while debit is used to record a decrease in funds.
- It can be interpreted that debit is saving at the bank, while credit is spending or borrowing a certain amount of money from the bank.
- Debit is a bookkeeping recording process related to reducing the amount of deposits.
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Use of Debit and Credit in Accounting
In order to better understand the differences between debit and credit, below is an explanation of the use of both in accounting along with the account names for the use of debit and credit in accounting.
Asset
The first account that uses debit and credit is assets. Assets or commonly known as assets are divided into two, namely fixed assets and current assets. Current assets are assets or assets that are easiest to disburse or are in liquid form. Some liquid accounts in current assets include cash, office equipment, business accounts, machinery and vehicles. So, when an asset increases, its position is in debit, while if it decreases, it will be in credit. That’s the difference between debit and credit in an asset account.
Burden
Expenses or the term expense can be interpreted as expenditure that must be made so that the business can continue to run. This expense also increases if it is later debited and will decrease if it is credited.
Equity
Furthermore, the difference between debit and credit is also found in debt and equity accounts. For example, a company has taken out a loan from the bank amounting to IDR 100,000,000 as initial capital. So, in the accounting journal it can be seen that cash will increase by IDR 100,000,000 from the bank loan.
Accumulation
The final account which is then related to the difference between debits and credits includes part of non-current assets which can increase in value if credited or known as accumulation. Accumulation in the balance sheet itself will later reduce the value of fixed assets such as vehicles and tools. By recording the accumulation of vehicles or equipment, it will be easier to assess whether the asset will experience a loss or profit when resold.
Financial Information in Debit
Using a debit or credit system will then help provide a more complete picture of the company’s financial position and to better understand how its finances have changed and what the consequences of these changes are. The debit account itself can show four financial information including:
- Increase in assets. For example, income and income or other types of assets, the value of which will then be recorded as an amount of money.
- Increase in costs. For example, money that will then be spent to purchase assets or cover overhead costs.
- Decrease in liabilities. For example, money is then spent to pay debts or sell assets whose maintenance costs then become more expensive than the added value.
- Decrease in equity. For example, on the sale of shares or a decrease in income.
Debit in Banking and How It Works
In the banking world, debit is a transaction in the form of money going out. When a bank account is debited, money is removed from the account. The opposite of debit is credit, in this case, this money will be added to the account. Every time money is transferred from a customer’s account it will then be recorded as a bank debit. Bank debit is a bookkeeping term for recording reductions in deposits in customer bank accounts.
Bank accounts are also debited when transactions are made, usually using a debit card, bill paying system, or by check. Bank debits may also include overdraft fees, annual account fees, and other fees associated with managing and maintaining a bank account. Bank debits are only permitted by account holders and any charges are legally permitted when the customer then legally signs the account opening documents.
Debit cards also allow bank customers to spend money by withdrawing existing funds that they have previously deposited in the bank, such as from a checking account. Credit cards and debit cards usually look almost identical, with a 16-digit card number, expiration date, and personal identification number (PIN) code.
The difference is, a debit card allows the owner to spend money by withdrawing funds that have been deposited in the bank. Meanwhile, a credit card allows the owner to borrow money from the card issuer up to a certain limit to buy goods or withdraw cash. The debit card itself functions as a cross between an ATM card and a credit card.
Customers can use it to get cash from the bank’s automatic teller machine or can make transactions directly. Whether used to get cash or to buy something, a debit card works the same way. This card directly withdraws funds from the affiliate’s account.
So, spending is limited to what is available in the checking account, and the exact amount of money that must be spent will then fluctuate from day to day, along with the account balance.
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Closing
That’s the discussion about debits , including their use in accounting accounts. Hopefully all the discussion above is useful for Mudacepat .
Talking about finance is difficult to separate from accounting. If you want to deepen your accounting knowledge, you can do this by reading articles. You can find this article about accounting at mudacepat.com . To support Mudacepat in increasing knowledge, Mudacepat always provides quality and original articles so that Mudalovers have information.