Debit

What is a Debit?

In accounting, a debit refers to an entry made on the left-hand side of a double-entry bookkeeping system’s account. Debits are used to either increase asset or expense accounts, or to reduce liability, equity, or revenue accounts. Essentially, debits correspond to an increase in company assets and expenditures.

Examples of Debits

Cash Purchase of Inventory: When a company purchases inventory using cash, it will record a debit to the inventory account and a credit to the cash account to reflect the outflow of cash.
Receivables from Sales: If a business makes a sale on credit, it will debit the accounts receivable account, indicating that it expects to receive cash in the future.
Payment of Expenses: When a business pays for its monthly rent, it will debit the rent expense account, thus increasing its expenditure.

Frequently Asked Questions

1. What is the basic principle of a debit in double-entry bookkeeping?

The basic principle of a debit in double-entry bookkeeping is that for every transaction, debits must equal credits to maintain balanced accounts, ensuring the accounting equation (Assets = Liabilities + Equity) holds true.

2. How does a debit affect asset accounts?

A debit increases the balance of asset accounts. When an asset account is debited, it implies that the company’s ownership of that asset has increased.

3. How does a debit affect expense accounts?

A debit increases the balance of an expense account. It represents an outflow of resources, often money, used to operate and run the organization.

4. Does a debit always mean an increase in accounts?

No, a debit will increase asset or expense accounts but will decrease liability, equity, or revenue accounts.

5. What is the impact of a debit on a bank account?

For bank accounts, a debit signifies an outflow of funds. It means money is being taken out of the account, reducing the account’s balance.

Credit: An entry on the right-hand side of an account in double-entry bookkeeping that decreases assets or increases liabilities, equity, or revenue.

Double-Entry Bookkeeping: A method of bookkeeping where every transaction affects at least two accounts, with a debit entry in one account and a corresponding credit entry in another.

Accounts Receivable: Money owed to a company by its debtors. When a sale is made on credit, this account is debited.

Accounts Payable: Money owed by a company to its creditors. Payments to these accounts are recorded as debits to the corresponding liability.

Online References

Suggested Books for Further Studies

“Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper: A concise guide to the basics of accounting.
“Financial Accounting For Dummies” by Maire Loughran: Ideal for beginners to understand financial statements.
“Principles of Accounting” by Belverd E. Needles: Comprehensive coverage of financial accounting principles.

Accounting Basics: “Debit” Fundamentals Quiz

### What side of an account is the debit entry made on? - [x] Left-hand side - [ ] Right-hand side - [ ] Top side - [ ] Bottom side > **Explanation:** In double-entry bookkeeping, a debit is recorded on the left-hand side of an account. ### How does a debit entry affect an asset account? - [x] It increases the balance - [ ] It decreases the balance - [ ] It has no effect - [ ] It transfers ownership > **Explanation:** A debit entry increases the balance of an asset account. ### How does a debit entry affect an expense account? - [x] It increases the expense account - [ ] It decreases the expense account - [ ] It transfers monetary assets - [ ] It nullifies the expense > **Explanation:** A debit entry increases the balance of an expense account. ### What does a debit entry typically signify in the context of a bank account? - [x] An outflow of funds - [ ] An inflow of funds - [ ] No change in balance - [ ] A foreign transaction > **Explanation:** In the context of a bank account, a debit typically signifies an outflow of funds. ### Which of the following accounts would a debit entry decrease? - [ ] Asset accounts - [ ] Expense accounts - [x] Liability accounts - [ ] Dividend accounts > **Explanation:** Within liability accounts, a debit entry decreases the account balance. ### Which equation must always remain balanced in double-entry bookkeeping? - [ ] Revenue = Expenses - [ ] Debits = Credits - [x] Assets = Liabilities + Equity - [ ] Profit = Income - Costs > **Explanation:** The accounting equation (Assets = Liabilities + Equity) must always remain balanced in double-entry bookkeeping. ### Why is a debit used in expense accounts? - [ ] To show profitability - [x] To record the increased expenditures - [ ] To track potential loans - [ ] To project future profits > **Explanation:** A debit is used to record increased expenditures in expense accounts. ### How does a debit impact the balance in an equity account? - [ ] It increases the balance - [x] It decreases the balance - [ ] It consolidates assets - [ ] It impacts revenue directly > **Explanation:** A debit decreases the balance in an equity account. ### Why would a company debit an accounts receivable account? - [ ] To track loans - [ ] To consolidate revenue - [x] To record expected future cash inflows - [ ] To record immediate cash outflow > **Explanation:** A company debits the accounts receivable account to record expected future cash inflows. ### Which principle requires that for every debit entry, there must be an equal credit entry? - [ ] Expense Principle - [ ] Revenue Principle - [x] Double-entry Principle - [ ] Ownership Principle > **Explanation:** The Double-entry Principle requires that for every debit, there must be an equivalent credit entry.

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