What is debit and credit in accounting?
When it comes to accounting, debit and credit are the most commonly heard words. Many people know the meaning of debit and credit in accounting, still, some people might be confused about these two words. The debits are the outflow of the cash and credit is the inflow of the cash. For every transaction that is recorded, there are two entries in the accounting books, once each for credit or debit.
Consider a simple example, whenever a bank employee says they are crediting a particular amount in your account then a debit entry is created in the bank account. Similarly, when a particular amount is debited from your account then a credit entry is made elsewhere. A proper changing of the accounting balance is done with credit or debit. For every business, a proper debit and credit entry is very essential. It helps to track all the business transactions properly.
More understanding on debit and credit in accounting
In the accounting books, the entry decreasing or increasing is determined by the entered amount in a particular section. The debit entry is done in the left column and the credit entry is done in the right column. There is little difference between the inherent meaning of debit and credit. This can clearly be bifurcated as per the type of activity is involved in the accounting activity.
What is the importance of debit and credit in accounting?
As debit and credit are the basic aspects in accounting, it has got a lot of importance.
Here are some of the importance of debit and credit in accounting listed below:
1. Helps to improve budgeting
Most companies have a nice budgeting system in their accounting. If the tracking of the transactions is not kept properly then it will be unnecessary cash flow. Debit and credit help to improve the budgeting consistently. The businesses can adhere to the budgeting properly.
2. Balance the transactions
In double-entry accounting, there is always a credit to every debit and vice-versa. With debit and credit, a proper balance of the transactions can be kept to improve the accounting.
3. Bringing accuracy
There are many simple to complex transactions in the business. If the track is not kept properly, then it can be difficult to analyze the cash flow in the business. With debit and credit in accounting books, there can be accuracy in the different accounting ledgers. It will help to make proper decisions.
4. Improve the financial health
Every business wants to improve the financial health of the business. Improper accounting can make it difficult to efficiently run the business. With debit and credit in a proper place, it can be easy to track the financial status of the business. It can help to improve the financial health of the business.
