Debits are transactions that show the inflow of money into a book of accounts, while on the other hand, credits are helpful in indicate transactions of outflow of money from a book of accounts. This method of recording is the universally accepted way of recording transactions under the Generally Accepted Accounting Principles (GAAP)

• Differences between credits and debits

Debits and credits are ways of recording transactions that happen daily in a business. They are reasonably identical but entered on opposite sides of books of entries. Debits are on the hand entered on the side (usually the left side) that increases assets and decreases liabilities compared to credits entered on the side (usually the right), increasing liabilities and declining assets. These debit and credit transactions are what is termed as double-entry bookkeeping in that every debit transaction must have a corresponding credit entry.

• Balancing credit and debit journal entries

The purpose of the debit and credit transactions is to ensure that the books of accounts are always balanced. One transaction affects at least two of these accounts. To grasp this concept of debit and credit, take an example of using some money from the business to pay a supplier. The assets (a debit) are worth the money to pay the debtor; hence will be reduced, and the liabilities of the same amount are reduced (credit).

• Recording transactions

These debit and credit transactions will be recorded in a balance sheet or ledger accounts. When recording them in a balance sheet, ensure that all the debit transactions are on the left (abbreviated as Dr) and credit transactions are on the right (abbreviated as Cr) of the balance. The total of credits and debits must tally for the balance sheet to be accurate. The same way goes for recording on other financial statements as in ledger accounts etc. These are accounts for each transaction, and the same double-entry system applies. For a credit ledger account, the transaction is on the right side, and a new ledger for a corresponding debit transaction is opened, and the entry is posted on the left side. For example, you buy stock worth 2000 USD using your bank; you will open a purchases ledger and debit it with 2000 USD and then open a bank ledger and credit it with 2000 USD.

However, for banking purposes, crediting and debiting are different from the bookkeeping one. When a bank account is credited, it means that the bank balances of the credited account increase, and when the account is debited, it means that the bank balance as money is drawn from that account. This process is an inverse of bookkeeping debit and credit concepts. The double entry system still applies, though, in the bank case scenario, when the bank balances its accounting books, it has to show money flow. All transactions must affect at least two accounts to ensure that the debit and credit status are balanced. All money that flows in should be debited, and all money that flows out should be credited.

How debit and credit accounts work is essential for accountants and bookkeepers as it forms recording transactions. Are you struggling to balance your balance sheet assignments? Are you unfamiliar with knowing where credits and debits fall in a journal? No need to burn the midnight oil doing accounting assignments; with a click of a button, you get accounting assignment help instantly. We are 24/7 ready to come to your rescue. Hire us today and get quality grades.