Debit and credit are the most used words when it comes to accounting and banking, and if you do not know the difference between the two then chances are you will never be able to understand any concept of accounting or banking. Let’s look at some of the differences between debit and credit –
- In accounting in case of nominal accounts when one looks from company point of view debit refers to anything which results in expenses or losses so for example when company pays salary to employees or pay rent for office premises it will be debited while credit refers to anything which result in income or profits for the company, so for example when company receives commission for services rendered, when company makes sales, interest income on investments etc….., are credit items from the point of view of company.
- In case of real accounts assets like land, building, plant and machinery etc…, debit means anything which comes into the business so if company buys land or building, plant and machinery then it will be debited whereas when company sell these assets then it will be credited in the books of accounts.
- In case of personal accounts whoever receives something from the company will be debited, so for example debtors account will be debited whereas whoever pays to the company will be credited.
- In case of customers of banks when it comes to debit it means anything which results in funds flowing from customer to bank so when customer issue a check to third party for payment it will result in debit, or when banks charges fess for debit or credit card it will be debit and when customer deposit money in bank or give check in clearing it will result in credit to customer bank account.
- In case of cards debit card means that card which can be used by customer only when he or she has sufficient balance in the account because when one uses debit card the amount is debited immediately from the account whereas in case of credit cards one can use it without having sufficient cash balance in the bank account and then pay later whenever the customer has money in his or her account.