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Debit and credit are formal bookkeeping and accounting terms. They are the most fundamental concepts in accounting, representing the two sides of each individual transaction recorded in any accounting system. A debit transaction indicates an asset or an expense transaction, a credit indicates a transaction that will cause a liability or a gain. A debit transaction can also be used to reduce a credit balance or increase a debit balance. A credit transaction can be used to decrease a debit balance or increase a credit balance.

An account represented in a way opposite to what would be expected, such as an asset account recorded as a credit, is referred to as a contra account. An example would be accumulated depreciation, which is a contra asset account, as it reduces the value of an asset.

Debits and credits are a system of notation used in bookeeping to determine how and where to record any financial transaction. In bookkeeping, instead of using additions '+' and subtraction '-' symbols, a transaction uses the symbol DR (Debit) or CR (Credit). In double-entry bookkeeping debit is used for asset and expense transactions and credit is used for liability, gain and equity transactions. For bank transactions, money in is treated as a debit transaction and money out is treated as a credit transaction. Traditionally, transactions are recorded in two columns of numbers debits in the left hand column, credits in the right hand column. Keeping the debits and credits in separate columns allows each to be recorded and totalled independently. Where the total of the debit value amounts is lower than the total of the credit value amounts a balancing debit value is posted to that nominal ledger account. That nominal ledger account is now "balanced". An account can have either a credit value balance or a debit value balance but not both.

Credit is used not only for liabilites and owner's equity accounts. Credit can also be used for assets and expense accounts. An increase in a liability account requires a credit to the liability account concerned. In the same manner, an increase in the owner's equity account requires a credit to the owner's equity account. For an asset account, which normal balance is debit, a decrease will be recorded as a credit to the affected asset account. Similarly, since an expense account normally has a debit balance, a decrease in the expense account requires a credit to that expense account.

Debits And Credits Subcategories Debits And Credits Articles Credit Card Debt Settlement - A New Loophole in the Banking System by matt couch May 01, 2010 Credit card debt settlement helped the people who had low credits in the bank account. There are lot of people who are having large debits and it is only through credit card liab...