What is the difference between debit and credit in the accounting system?
A company’s accounting system will have several accounts – it may have one account for each supplier and each customer, etc. All transactions happen between two accounts – one Account owes money to the other Account. The receiver owes money to the giver. The receiver is debited and the giver is credited. For example, when Supplier1 delivers goods worth $100 to the Company, the Company owes $100 to Supplier1. Supplier1 is the giver and Company is the receiver. The Company credits Supplier1 account by $100. When it actually pays off Supplier1, the Company is the giver and Supplier1 is the receiver. Company debits the Supplier1 account with $100, and thus clears the balance. Simultaneously, Supplier1 will have an account in the name of the Company. It will do the opposite – initially it will debit the Company account since it is owed $100 by the Company and then credits the Account when it actually receives the money.
In accounting you look at assets, liabilities, equity, revenue and expenses. Debits in assets means that asset increased (usually from increase in cash or accounts receivable due to sales), Credits in assets means that asset decreased (usually from payment of cash for purchases). Debits in liabilities means that liabilities decreased (usually from reduction of accounts payable by payment of cash to creditors), Credits in liabilities means that liabilities increased (usually from taking up a loan or accepting payment in advance from sales). Debits in equity (net asset or asset – liabilities) means equity decreased (usually from losses), Credits in equity means equity increased (usually from profits and share capital increases (company only)). Debits in revenue means revenue decreased (usually from sales returns and balance day adjustments of revenue accounts), Credits in revenue means revenue increased (usually from sales). Debits in expenses means expenses increased or incurred (usuall
