Accounting transactions often require the use of debit or credit amounts to balance out the equation. Understanding which one you should use is essential; if done incorrectly, it can throw off the entire account balance and cause months of confusion.
Credit is an accounting term that indicates a decrease in an asset or increase in a liability and is recorded on the right side of the accounting ledger. When a company borrows money, for instance, it will appear as a credit on their books. Conversely, debits are used to denote an increase in assets or decrease in liabilities and are recorded on the left side of the ledger. When making payments, you’ll typically see a debit to represent the decrease in funds.
By understanding when to use credit versus debit, you can keep your business’s accounts up-to-date and accurately reflect your financial situation.