This time we will discuss about the debit. What is debt, the difference between debit and credit in the financial statements and the difference between credit cards and debit cards?
Well, in this article we will discuss in-depth about the discharge and the ins and outs. Let’s watch together this article!
Definition of Debits
The word debit comes from the Latin “debate” which means “indebted.” This is an entry made on the left side of the ledger account. These are accounting entries posted when there are additions to assets, costs, and losses or reductions in income, profits, liabilities, and owner’s equity.
If the debit side of the account exceeds the credit side, it is considered a debit balance. For non-accounting individuals, debit refers to the amount that is withdrawn or deducted from a particular bank account.
Differentiating Debit and Credit in Accounting
Every time an accounting transaction is made, at least two accounts are always affected ie debit entries are recorded on one account and credit entries are recorded against the other account. There is no limit to the number of accounts involved in transactions, but a minimum of not less than two accounts.
The total debit and credit for each transaction must always be the same so that accounting transactions are always said: “in balance.”
If a transaction is out of balance, it is not possible to make financial statements. As such, the use of debits and credits in the two-column transaction recording format is the most important of all controls over accounting accuracy.
Summary of the Difference Between Debit and Credit
- Debit refers to the left side of the general ledger account while credit is related to the right side of the general ledger account.
In a personal account, the recipient is debited while the giver is credited.
- Whatever comes in is debited in the balance sheet account, while whatever comes out is credited therein.
- For the income statement, all expenses and losses are debited, however, all income and profits are credited.
- The increase in debits is caused by increases in cash, inventory, factories and machinery, land and buildings, expenses such as salaries, insurance, taxes, dividends, and others. The increase in credit was due to an increase in shareholder funds, membership fees, rental income, retained earnings, debt, and others.
The Importance of Making Debit and Credit Reports in the Company
A business within a company naturally experiences transactions, both internally and externally. These transactions require companies to make transaction documents in the form of financial statements.
One of them is to determine the rate of entry and exit of company funds to minimize the possibility of over budgeting in certain account categories in reporting. There are five elements in accounting transactions, namely debt, assets, income, capital, and costs or expenses.
A debit transaction is definitely accompanied by a credit transaction. Companies that do not have debit and credit reporting documents cannot control the flow of financial inflows. In addition, company financial data cannot be traced if something happens to the company’s finances.
With the debit and credit reports expected to help oversee the company’s finances from the possibility of corruption from employees. Because good debit and credit data are always accompanied by credible receipts or official notes.
The Difference between Credit and Debit Cards You Need to Know
The difference between credit and debit cards is quite clear in many ways. One of them is the difference according to its features. Because of different features, the purpose of the use is different.
Unfortunately, there are still those who do not know the difference between the two transaction cards. As a result, that person cannot maximize the benefits of their credit and debit cards.
As a transaction tool, credit and debit cards have the same function, namely to make payments in non-cash. Instead of the hassle of carrying cash everywhere, it’s simpler to just pocket a credit or debit card in your wallet.
Transaction validation is also similar, using a personal identification number (PIN). Indeed, there are still those who use signatures. But this mechanism is not recommended because it is prone to be abused.
But there are more differences between credit and debit cards than the similarities. The following are:
– Credit cards are cards that can be used to pay for transactions by credit. Later, the bill for the transaction comes in a certain period and must be paid.
– No account is required at the card-issuing bank because the source of funds is not taken from the account. But usually, credit card applications are more likely to be granted if they have savings at a related bank.
– Banks set a number of special conditions for issuing credit cards. One bank can issue various types of credit cards. The requirements for each type are different.
– Although there are no sources of funds, there are credit card limit provisions as limits for their use. If the limit has been reached, the card cannot be used for transactions or can be used but there are over-limit fees.
– Credit card owners must pay an annual fee. Usually, contributions are free for the first year. But there are also credit cards that are free of annual fees forever.
– Credit cards can be used to pay for online transactions using the three-digit number code on the back of the card. There are no internet banking or mobile banking features for online transactions.
– Withdraw cash using a credit card at an ATM machine, but there are additional fees. These fees vary depending on the card-issuing bank.
– There is interest to be paid if you don’t pay your bills on time or use them to pay in installments.
– There are benefits in the form of installments with 0 percent interest, points that can be exchanged with prizes, up to cashback on each transaction
– Can be used to transact abroad in accordance with the card network
– Debit cards are cards issued by banks as a complement to savings accounts. Each savings is generally accompanied by a debit card for the transaction.
– The source of debit card funds is the savings account associated with the card.
– Debit card issuance requirements only have savings in the relevant bank.
– Limit transactions using a debit card is the nominal funds in savings. If the funds run out, the card can no longer be used.
– There is no annual fee, but there are administrative costs that are charged every month for the ownership of savings.
– There are several debit cards that can be used to shop online like a credit card. But most still can’t.
– General benefits are only in the form of discounts on transactions using a debit card
Credit Card vs. Debit Card
Seeing the difference between credit and debit cards above, you can find the advantages and disadvantages of each. Different features are determinants of these advantages and disadvantages.
Offer Easier Transactions
In general, the advantage of credit cards is that they can be used for transactions easily, especially for online shopping. In addition, profits on transactions, from 0 percent installments to cashback, can be used for budget planning.
But the drawback is that it is prone to be abused by irresponsible users. Abuse, for example, originating from transactions without thinking about bills or negligent bills, can lead to accumulated debt.
While the advantage of debit cards is that their use is safer from debt risk because the source of funds is a savings account. In addition, there are no various fees or fees that can be a burden. The shortage of a debit card is that the transactions are more limited in accordance with the savings balance.
Speaking of card security, the two are not too different. There is a threat of skimming to fraud. Potential losses depend on savings balances and credit card limits. The more balances and limits, the greater the loss can be.
From there it can be concluded that the most important difference between credit and debit cards is their intended use. Credit cards can be used for more things and demand higher responsibilities to pay bills.
While the use of debit cards is more limited. But there are no demands or burdens to pay bills later on because the transaction is completed right then and there.
The good, that’s why credit and debit cards can be owned simultaneously. Depending on the situation and conditions, you can use a credit or debit card for different purposes.
Now, after we know the definition of debit and credit also the difference both in financial statements and in the form of cards. Then, there is one more important info for you about HR software.