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Thursday, February 18, 2010

Debits and Credits

Every single transaction recorded in the accounting process falls into one of two categories: it is either a debit or a credit.   We could use the official definitions here, but I prefer to keep absorption levels (and interest) high, so we are going to use very simple definitions and examples.  A debit is a transaction of value “added” to an account.  A credit is a transaction of value “removed” from an account.  Debit, value is added.  Credit, value is removed.  For example, in your checking account, a deposit is a debit, a check is a credit. This is as simple as the definition gets in practical application.  How you apply those transactions, depends upon the type of account you are working with.

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