Debit and Credit Explained

As we all know that accounting is an art of recording and writing down monetary transactions in organized and disciplined form. Modern day concepts of accounting were introduced by Luca Pacioli in about 15^th century. Pacioli was the inventor of the double entry system and came up with the concepts of debit and credit. Both words debt and credit are originated from French and Latin languages. The word debit is originated from the word debitum that means to owe something where as credit is derived from the word creditum that means something that is loaned or entrusted. Other accounting terms such as debtor and creditor are derived from these two terms.

Debit and credit forms the bases of the modern accounting system as double entry accounting system depends upon the difference of debit and credit. In terms of accounting debit and credit are simply classification of the transactions done by an individual or a business. Debit and credit in accounting are classified by using six basic rules. These are as under:-

Debit the receiving end in the business

Credit the giving end in the business

Debit the amount of money or cash that comes in

Credit the amount of money or cash that goes out

Debit all the total expenses and total losses of a business

Credit all the income and earnings of the business

These six rules are the basic step in all transactions and collectively constitute the double entry system.

Other Related Accounting Articles:

• The Concept of Double Entry Accounting System
• Definition and Explanation of Accounting
• Definition and Explanation of Bookkeeping
• Definition and Explanation of Single Entry System
• Definition and Explanation of Ledger
• Journal Accounting
• Importance of Variance
• Accounting Equation
• Petty Cash Accounting
• Credit Utilization Rate