History of Debits And Credits

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What are Debit and credit in accounting?

Debits and Credits is a classification method that is

used for coding the financial transactions of a business and recording them in the book keeping system

 In double entry accounting, rather than using a single

column for each account and entering some numbers as positive and others as negative, we use two columns for each account and enter only positive numbers. Whether the entry increases or decreases the account is determined by choice of the column in which it is entered. Entries in the left column are referred to as debits, and entries in the right column are referred to as credits.

Continue
Two accounts always are affected by each transaction,

and one of those entries must be a debit and the other must be a credit of equal amount. Actually, more than two accounts can be used if the transaction is spread among them, just as long as the sum of debits for the transaction equals the sum of credits for it.

Correct the Book-Keeping Errors

The double entry accounting system provides a system

of checks and balances. By summing up all of the debits and summing up all of the credits and comparing the two totals, one can detect and have the opportunity to correct many common types of bookkeeping errors.

To avoid confusion over debits and credits

To avoid confusion over debits and credits, avoid

thinking of them in the way that they are used in everyday language, which often refers to a credit as increasing an account and a debit as decreasing an account.

 The confusion can be eliminated by remembering one

thing. In accounting, the verbs "debit" and "credit" have the following meanings:
Debit

"Enter in the left column of" Credit "Enter in the right column of"

History of Debit and Credit:

Debits and credits is a financial transaction

classification system that was first used by the Venetian merchants in Italy in the 15th century. While it was widely used by the Venetian merchants, its took a mathematician by the name of Luca Pacioli to document and publish this system in a book.

 The book Luca wrote to codify the Venetian method of

bookkeeping in 1494 was one of the first published by Gutenberg on his innovative printing press. Today Luca is revered widely as The father of accounting. Lucas book explained the whole book keeping system of which Debits and Credits were a key part. The overall system that he documented has come to be known as the Double- entry bookkeeping system.

 Now while this system was developed over 500 years

ago, its principles and processes are still followed by todays accountants and bookkeepers the world over.

Latin terms Credre and Debere

It is interesting to note that the concept of negative

numbers was not generally accepted in mathematics in the 1500s when Luca first codified the double-entry book-keeping system.

Further Explain
This may further explain why he used Debits and

Credits rather than + and which is the system that the accounting software of today uses to process financial transactions. Still, lets not get any more confused other than point out that a lot has changed in the world in past 500 years, but the double-entry bookkeeping system is not one of them.

 Lucas book was written in the vernacular of the age

Latin. So the terms he used for Debit and Credit in his book were Credre and Debere . In Latin the word Credre means to entrust and Debere means to owe.

 These Latin meanings give us our first glimpse into the

underlying principles that the Debit and Credit classification system seeks to maintain. It is also clear that we got the Debit abbreviation of Dr. from the Latin, because unlike the Latin term, there is no r in the English term Debit.

Aspects of Transaction:
an increase (+) to an asset account is a debit.
An increase (+) to a liability account is a credit. Conversely, a decrease (-) to an asset account is a

credit. A decrease (-) to a liability account is a debit.

Cont.
Debits and credits form two opposite aspects of every

financial transaction in double-entry bookkeeping.

Debits are entered on the left side of a ledger, and

credits are entered on the right side of a ledger.

Cont.
In the accounting equation:

Assets = Liabilities + Equity (A = L + E), if an asset account increases (by a debit), then one must also either decrease (credit) another asset account, or increase (credit) a liability or equity account.

Cont.

Terminology:
The words debit and credit are both used differently

depending on whether they are used in an accounting sense, or non-accounting sense.

Cont.
In a non-accounting sense, according to a "debit" is: A written note on bank account or another financial

record of a sum of money owed or spent, or A sum of money taken from a bank account.

Cont.
In a non-accounting sense, according to "credit" is Money available for a client to borrow.

In the academic field of accounting (bookkeeping)

the words "debit" and "credit" as used in accounting

has little connection with the nonprofessional's understanding of "debit" and "credit".

Cont.
When recording numbers in accounting,

A debit value is placed on the left side of a ledger for a

debited account and a credit value is placed on the right side of a ledger for a credited account.

Principle of debit and credit:

Each transaction consists of debit and credit and for

every transaction they must be equal.

The general accounting equation is as follow:

Assets = Equity + Liability

Cont.
For every transaction
Value of debit = Value of credit The total value of the debit will equal the total of the

credits. You can check the arithmetical accuracy of the accounts by doing a trial balance and proving that total debit equals total credit.

Cont.
The extended accounting equation must also balance

A + E = L + OE + R (Where A= asset, E= Expense, L= liability, OE= owners equity, R= revenue)

Cont.
So
Debit account = Credit account

(A + E) = ( L + OE + R) Debits are on the left and increase a debit account and reduce a credit account. Credits are on the right and increase a credit account and reduce a debit account.