An overview of accounting entry terms: Credit and debit

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Developing a strong understanding of the core components of accounting is critical for students interested in pursuing a career in this unique, secure and engaging field. While the majority of knowledge will be cultivated through earning an accounting degree online, there are many foundational elements that prospective students can familiarize themselves with prior to taking that first course. With some knowledge of the accounting profession already under their belts, learners are more prepared to dive into classes and absorb the instruction provided.

Debit and credit accounting is one of these important pieces of the accounting world. Students in the University of Alabama at Birmingham’s Bachelor of Science in Accounting program should have a very firm grasp of what makes this process so important to accountants and financial professionals. Let’s explore debit and credit accounting in an effort to make this critical piece of the accounting puzzle more clear.

A woman’s hand holding a debit or credit card.

Understanding debit vs. credit accounting

The basic logic underpinning credit vs. debit accounting is quite simple and easily understood. Accountants and those in similar roles record business transactions in double-entry bookkeeping. They maintain separate columns and entries for transactions that cost a company money and those that bring in funds. Credits, which are generally recorded on the right side of a ledger, occur when the business spends. Debits, generally recorded on the left side of a ledger, occur when the business receives income.

This approach is crucial in terms of making sure all accounts involved in the operation of a business are balanced. Every transaction can be seen as affecting at least two distinct accounts. An example comes from paying a mortgage on a piece of property where a business’s headquarters or production facility is located. Making a loan payment, and the cumulative effect of making payments over time, influences both available cash on hand and the notes payable account where the loan is recorded for accounting purposes. Although cash is paid out, liability in terms of paying back that loan is reduced. In some instances, such as a loan payment where interest is involved, accountants need to track the cash payment as well as the changes to both interest expense and notes payable. Modern accounting software will often simplify these practices, but it’s vital that professionals understand the logic behind them. Whether they need to calculate something by hand while away from their desk or the software is going through a lengthy update or re-installation, accountants must make sure they develop this core skill. In many cases, information related to the basics of debit vs. credit accounting needs to be memorized to facilitate additional learning.

Another aspect to consider in terms of debit and credit accounting is how these two actions affect various forms of accounts in different ways. Accounts tied to assets, dividends and expenses follow the same rules in terms of how debits and credits affect them: these accounts all increase with debits and decrease with credits. Consider accounts receivable, the account which tracks money owed to a business. For many early accounting students, understanding how accounts receivable fits into debit or credit  is one way to frame this rule. Accounts receivable is an asset account that represents money owed to the business and will increase as more debits are associated with it. The normal state of balance for all such accounts tied to assets, dividends and expenses is to include more debits than credits.

Meanwhile, accounts tied to equity, liabilities and revenue are decreased with debits and increased with credits. The normal state for these accounts is a credit balance. Developing this basic yet vital knowledge will only help prospective students as they begin considering accounting programs and as they take their first courses within a curriculum.

How UAB helps students understand credit and debit accounting

The University of Alabama at Birmingham is proud to offer an online Bachelor of Science in Accounting degree that provides a strong foundation for students and allows them to reliably progress into more complex and high-level topics during their educational career. When it comes to credit and debit accounting, students build knowledge through the Lower Level Core, which offers an introduction to a variety of relevant business topics. Principles of Accounting I and II give learners the instruction they need to begin building a strong knowledge base around concepts like debit and credit accounting. Then, the classes at the beginning of the Accounting Core, such as Financial Accounting I and Cost Accounting, solidify that early knowledge and help students continue their progression toward a degree.

An online accounting degree that fits into everyone’s schedule

The educational opportunities offered by UAB are the basis of a strong online accounting degree program that equips students to work toward professional goals. However, the high-quality learning opportunities online students enjoy are far from the only benefit to consider. Program participants also benefit from an asynchronous learning environment that moves at their own pace, making it that much easier to balance existing personal and professional obligations with the significant commitment of pursuing a degree. With distinguished faculty, 24/7 technical support and networking opportunities with professors and students throughout the program, there’s plenty to be excited about. To learn more, get in touch with an enrollment advisor today.

Recommended Readings:

Careers you can pursue with a Bachelor of Science in Accounting

What you can learn about internal auditing at UAB

Sources:

Accounting Coach: Debits and Credits

Principles of Accounting: Accounts, Debits and Credits

AccountingTools: Debits and credits

UAB Collat School of Business: Bachelor of Science in Accounting

UAB Collat School of Business: Course Descriptions BACC