Keeping your finances straight is extremely important when you’re a small business owner. Knowing your financial standing is essential in finding success. This means that you need to have a good understanding of what a credit and a debit works in the accounting world. Many small business owners don’t completely grasp this concept. Without understanding this, it can be difficult to have a clear financial picture. Mark Dicus & Company is here to talk about what credits and debits mean as far as accounting goes for your small business.
What is Debit in Accounting in Simple Words?
Record keeping is an essential part of owning a small business. As far as records go, a debit is representative of money that is flowing into your account. When you have accounting debits, it helps to decrease a small business’s liability. It is also indicative of an increase in assets. Debits can be found on the left side of t-accounts in a double entry bookkeeping method. When you have a debit, you can expect an increase in the following accounts:
– Dividends
– Assets
– Expenses
– Losses
What Does Credit Mean in Accounting?
On the flip side, a credit is when a record is made of entries that will decrease an asset or expense account. It can also be an increase in a liability or equity account. On a T-account in double-entry bookkeeping method, a credit will be found on the right side. There are quite a few accounts that will increase with a credit including:
– Gains
– Income
– Revenues
– Stockholders Equity
– Liabilities
Debit & Credit Rules
There are rules that govern when debits and credits are used in accounting.
– If a debt is added to a debit balance, the amount of all accounts will increase. When a credit is applied to them, it is going to lower all the account balances. This is true for accounts such as expenses, assets and dividends.
– When you have accounts that are credit and a credit is applied to them, they will increase. These accounts are lowered when a debit is applied to them. This is true for accounts like liabilities, equity and revenues.
– As far as a transaction is concerned, the amount of the debits needs to be be equal to the sum of the credits. It will not be able to be put in any accounting software if these two are unbalanced.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
It is imperative that small business owners know the difference between credits and debits and how they work together. Having a clear understanding of this is essential is attaining success as a business. It can be difficult to keep it all straight, and that is why so many small businesses rely on Mark Dicus & Company to help. We will take care of all your accounting and bookkeeping needs to help you achieve your goals as a business. Call us today!