Credit vs. Debit — What's the Difference?
By Fiza Rafique & Maham Liaqat — Updated on March 11, 2024
Credit and debit are fundamental concepts in accounting and finance, representing opposite entries in financial transactions. Credit increases liabilities or equity accounts, while debit increases asset or expense accounts.
Difference Between Credit and Debit
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Key Differences
In accounting, a debit entry signifies an increase in an asset or expense account or a decrease in a liability, equity, or income account. For example, when a company purchases equipment (an asset), the equipment account is debited, reflecting an increase in assets. Conversely, a credit entry indicates an increase in a liability, equity, or income account, or a decrease in an asset or expense account. If the company takes out a loan to purchase the equipment, the loan account (a liability) is credited, signifying an increase in liabilities.
In the context of banking and personal finance, the terms take on a more practical application. A debit transaction typically involves the removal of funds from an account, as seen with debit card purchases or withdrawals, directly reducing the account balance. Credit transactions, on the other hand, involve the addition of funds to an account or the use of borrowed funds, as with credit card purchases. In this case, the account balance can temporarily increase, but the borrowed amount must be repaid, often with interest.
The impact of credit and debit on financial statements is also significant. Debits to asset or expense accounts will increase those accounts, affecting the balance sheet and income statement, respectively. Credits to liability, equity, or income accounts increase those accounts, reflecting changes in the company's financial position and performance.
It's important to understand that in double-entry accounting, every transaction involves both a debit and a credit entry of equal value, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced. This system provides a comprehensive view of a company's financial transactions and aids in error detection.
In personal finance, managing credit and debit involves understanding the implications of spending and borrowing. Debit transactions represent immediate payment from one's own funds, promoting financial discipline. Credit transactions, however, require careful management to avoid overspending and accumulating debt, as they involve borrowing money that must be repaid.
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Comparison Chart
Accounting Entry
Increase in liabilities or equity, decrease in assets or expenses
Increase in assets or expenses, decrease in liabilities or equity
Banking Transaction
Addition of funds to an account or use of borrowed funds (e.g., credit card purchase)
Removal of funds from an account (e.g., ATM withdrawal)
Financial Statements
Affects balance sheet (liabilities/equity) and income statement (income)
Affects balance sheet (assets/expenses) and income statement (expenses)
Personal Finance
Represents borrowing or receiving of funds
Represents spending of owned funds
Double-Entry Accounting
Must be balanced with a corresponding debit entry
Must be balanced with a corresponding credit entry
Compare with Definitions
Credit
An accounting entry that increases liabilities, equity, or income.
Earning revenue increases the income account with a credit.
Debit
An accounting entry that increases assets or expenses.
Purchasing supplies increases the supplies expense account with a debit.
Credit
In banking, it can represent the addition of funds or borrowing.
Credit card purchases use borrowed funds, needing repayment.
Debit
Represents the use of funds in banking, reducing account balances.
A debit card purchase directly reduces your checking account balance.
Credit
Affects the company's financial position and performance.
Issuing shares increases equity with a credit entry.
Debit
In double-entry accounting, debits must balance with credits.
For every transaction, the total debits must equal the total credits.
Credit
In double-entry accounting, credits balance with debits.
Each credit entry in a transaction has a corresponding debit entry of equal value.
Debit
Can decrease liabilities or equity in accounting.
Repaying a loan decreases the loan liability with a debit.
Credit
Requires careful management in personal finance.
Misusing credit cards can lead to debt due to the ease of borrowing.
Debit
In personal finance, it emphasizes spending within one's means.
Using a debit card encourages financial discipline by limiting spending to available funds.
Credit
Credit (from Latin credit, "(he/she/it) believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), but promises either to repay or return those resources (or other materials of equal value) at a later date. In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.
Debit
An item of debt as recorded in an account.
Credit
An arrangement for deferred payment of a loan or purchase
A store that offers credit.
Bought my stereo on credit.
Debit
The left-hand side of an account or accounting ledger where bookkeeping entries are made.
Credit
The terms governing such an arrangement
Low prices and easy credit.
Debit
An entry of a sum in the left-hand side of an account.
Credit
The time allowed for deferred payment
An automatic 30-day credit on all orders.
Debit
The sum of such entries.
Credit
The deduction of a payment made by a debtor from an amount due.
Debit
To enter (a sum) on the left-hand side of an account or accounting ledger.
Credit
The positive balance or amount remaining in a person's account.
Debit
To charge with a debit
If you use an ATM, the bank will debit your account immediately.
Credit
A credit line.
Debit
In bookkeeping, an entry in the left hand column of an account.
A cash sale is recorded as debit on the cash account and as credit on the sales account.
Credit
Reputation for solvency and integrity entitling a person to be trusted in buying or borrowing
You should have no trouble getting the loan if your credit is good.
Debit
A sum of money taken out of a bank account. Thus called, because in bank's bookkeeping a cash withdrawal diminishes the amount of money held on the account, i.e. bank's debt to the customer.
Credit
Official certification or recognition that a student has successfully completed a course of study
He received full credit for his studies at a previous school.
Debit
To make an entry on the debit side of an account.
Credit
A unit of study so certified
This course carries three credits.
Debit
To record a receivable in the bookkeeping.
We shall debit your account for the amount of the purchase.
We shall debit the amount of your purchase to your account.
Credit
Often credits An acknowledgment of work done, as in the production of a motion picture or publication
At the end of the film we stayed to watch the credits.
Debit
Of or relating to process of taking money from an account
Credit
Influence based on the good opinion or confidence of others
Used his credit with the police to get them to devote more time to the case.
Debit
Of or relating to the debit card function of a debit card rather than its often available credit card function en
Credit
Recognition or approval for an act, ability, or quality
Gave them credit for a job well done.
Debit
A debt; an entry on the debtor (Dr.) side of an account; - mostly used adjectively; as, the debit side of an account.
Credit
A source of honor or distinction
This exceptional athlete is a credit to our team.
Debit
To charge with debt; - the opposite of, and correlative to, credit; as, to debit a purchaser for the goods sold.
Credit
A reputation for sound character or quality; standing
It is to their credit that they worked so hard without complaining.
Debit
To enter on the debtor (Dr.) side of an account; as, to debit the amount of goods sold.
Credit
Belief or confidence in the truth of something
"They give no credit to [his] scurrilous assertions" (John Edgar Wideman).
Debit
An accounting entry acknowledging sums that are owing
Credit
To give as a credit
Credited $500 to her account.
Debit
Enter as debit
Credit
To give a credit to
Credit an account.
Credit
To give or award an educational credit to.
Credit
To regard as having performed an action or being endowed with a quality
Had to credit them with good intentions.
Credit
To ascribe or attribute
Credit the invention to him.
Credited her recovery to an innovative treatment.
Credit
(Archaic) To bring honor or distinction to.
Credit
(transitive) To believe; to put credence in. British usage?
Someone said there were over 100,000 people there, but I can't credit that.
Credit
To add to an account.
Credit accounts receivable with the amount of the invoice.
For the payroll period credit employees' tips to their wages paid account and debit their minimum wage payable account.
The full amount of the purchase has been credited to your account.
Credit
(transitive) To acknowledge the contribution of.
I credit the town council with restoring the shopping district.
Credit the point guard with another assist.
Credit
(transitive) To bring honour or repute upon; to do credit to; to raise the estimation of.
Credit
Reliance on the truth of something said or done; faith; trust.
Credit
(uncountable) Recognition, respect and admiration.
I give you credit for owning up to your mistake.
He arrived five minutes late, but to his credit he did work an extra ten minutes at the end of his shift.
Credit
(countable) Acknowledgement of a contribution, especially in the performing arts.
She received a singing credit in last year's operetta.
Credit
Written titles and other information about the TV program or movie shown at the beginning and/or end of the TV program or movie.
They kissed, and then the credits rolled.
Credit
A privilege of delayed payment extended to a buyer or borrower on the seller's or lender's belief that what is given will be repaid.
In view of your payment record, we are happy to extend further credit to you.
Credit
The time given for payment for something sold on trust.
A long credit or a short credit
Credit
A person's credit rating or creditworthiness, as represented by their history of borrowing and repayment (or non payment).
What do you mean my credit is no good?
Credit
(accounting) An addition to certain accounts; the side of an account on which payments received are entered.
Credit
(tax accounting) A reduction in taxes owed, or a refund for excess taxes paid.
Didn't you know that the IRS will refund any excess payroll taxes that you paid if you use the 45(B) general business credit?
Credit
A source of value, distinction or honour.
That engineer is a credit to the team.
Credit
(science fiction) A unit of currency used in a fictional universe or timeframe.
To repair your star cruiser will cost 100,000 credits.
Credit
A nominal unit of value assigned outside of a currency system.
Would you like to play? I put in a dollar and I've got two credits left.
Credit
(uncountable) Recognition for having taken a course (class).
If you do not come to class, you will not get credit for the class, regardless of how well you do on the final.
Credit
(countable) A course credit, a credit hour – used as measure if enough courses have been taken for graduation.
Dude, I just need 3 more credits to graduate – I can take socio-linguistics of Swahili if I want.
Credit
Reliance on the truth of something said or done; belief; faith; trust; confidence.
When Jonathan and the people heard these words they gave no credit unto them, nor received them.
Credit
Reputation derived from the confidence of others; esteem; honor; good name; estimation.
John Gilpin was a citizenOf credit and renown.
Credit
A ground of, or title to, belief or confidence; authority derived from character or reputation.
The things which we properly believe, be only such as are received on the credit of divine testimony.
Credit
That which tends to procure, or add to, reputation or esteem; an honor.
I published, because I was told I might please such as it was a credit to please.
Credit
Influence derived from the good opinion, confidence, or favor of others; interest.
Having credit enough with his master to provide for his own interest.
Credit
Trust given or received; expectation of future playment for property transferred, or of fulfillment or promises given; mercantile reputation entitling one to be trusted; - applied to individuals, corporations, communities, or nations; as, to buy goods on credit.
Credit is nothing but the expectation of money, within some limited time.
Credit
The time given for payment for lands or goods sold on trust; as, a long credit or a short credit.
Credit
The side of an account on which are entered all items reckoned as values received from the party or the category named at the head of the account; also, any one, or the sum, of these items; - the opposite of debit; as, this sum is carried to one's credit, and that to his debit; A has several credits on the books of B.
He touched the dead corpse of Public Credit, and it sprung upon its feet.
Credit
To confide in the truth of; to give credence to; to put trust in; to believe.
How shall they creditA poor unlearned virgin?
Credit
To bring honor or repute upon; to do credit to; to raise the estimation of.
You credit the church as much by your government as you did the school formerly by your wit.
Credit
To enter upon the credit side of an account; to give credit for; as, to credit the amount paid; to set to the credit of; as, to credit a man with the interest paid on a bond.
Crove, Helmholtz, and Meyer, are more than any others to be credited with the clear enunciation of this doctrine.
Credit
Approval;
Give her recognition for trying
He was given credit for his work
Give her credit for trying
The credits were given at the end of the film
Credit
Money available for a client to borrow
Credit
An accounting entry acknowledging income or capital items
Credit
Used in the phrase `to your credit' in order to indicate an achievement deserving praise;
She already had several performances to her credit
Credit
Arrangement for deferred payment for goods and services
Credit
Recognition by a college or university that a course of studies has been successfully completed; typically measured in semester hours
Credit
A short note recognizing a source of information or of a quoted passage;
The student's essay failed to list several important citations
The acknowledgments are usually printed at the front of a book
The article includes mention of similar clinical cases
Credit
An entry on a list of persons who contributed to a film or written work
Credit
Give someone credit for something;
We credited her for saving our jobs
Credit
Give credit for;
She was not properly credited in the program
Credit
Accounting: enter as credit;
We credit your account with $100
Credit
Have trust in; trust in the truth or veracity of
Common Curiosities
How do debit and credit entries affect financial statements?
Debit entries increase assets or expenses, affecting the balance sheet and income statement, respectively. Credit entries increase liabilities, equity, or income, also affecting these financial statements.
What is the difference between using a debit and a credit card?
Using a debit card involves spending owned funds, directly reducing your account balance, while using a credit card involves borrowing funds that must be repaid, often with interest.
How does a credit transaction work in banking?
A credit transaction in banking can involve the addition of funds to an account or the use of borrowed funds, like with credit card purchases, which must be repaid.
How does repaying a loan affect accounting entries?
Repaying a loan decreases the loan liability account with a debit entry, reflecting a reduction in the company's obligations.
What role do debits and credits play in double-entry accounting?
Debits and credits are fundamental to double-entry accounting, ensuring that every financial transaction is recorded in two accounts, maintaining the balance of the accounting equation and providing a comprehensive view of a company's financial transactions.
Why is credit management important in personal finance?
Credit management is crucial to avoid overspending and accumulating debt, as credit involves borrowing money that must be repaid, potentially with interest.
Can a single transaction have both debit and credit entries?
Yes, in double-entry accounting, every transaction involves both a debit and a credit entry of equal value to keep the accounting equation balanced.
How do debits and credits maintain the accounting equation?
Debits and credits in double-entry accounting ensure that for every transaction, the sum of debits equals the sum of credits, maintaining the balance of the accounting equation (Assets = Liabilities + Equity).
What are the implications of debit transactions in personal finance?
Debit transactions represent immediate payment from one's own funds, promoting financial discipline by limiting spending to the available balance.
What is a debit in accounting?
In accounting, a debit is an entry that increases an asset or expense account, or decreases a liability, equity, or income account.
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Written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Co-written by
Maham Liaqat
