Debit is an accounting term which means an expense, or money, paid out from an account. For each account that is debited, another one is credited with the same sum. Debit should not be confused with debt, which is money we borrowed and must pay back.
Debit in Accounting
To debit an account means to record a sum going out of an account and then record the same sum as going in another account. Debiting one account means crediting another. In the double-entry bookkeeping system we use, called so because every business transaction affects two accounts, debit is recorded on the left side on the chart of accounts and credit on the right side.
One Man’s Debit is Another Man’s Credit
An increase in the value of your assets is a debit to your account, and a decrease is a credit. This means that when you buy something of withdraw cash, you have more assets in your hands, but less money in the bank. Your bank account has been debited. On the other hand, when you put money in the bank, or get your monthly salary, your account is credited, while your employer’s account is debited.
Origins of 'Debit'
According to Investopedia, the accounting techniques described above were invented by a 15th century Franciscan monk named Luca Pacioli, known as the "Father of Accounting.” The term “debit” comes from the Latin word “debitum,” which means “what is due,” while “credit” comes from “creditum,” which is “something entrusted to another or a loan.” Today, accountants use abbreviations DR for debit and CR for credit.
Debit cards act as simple cash replacements. They are linked directly to your bank account. You can use them to buy goods or withdraw cash and the amount paid is taken from your account immediately. In accounting terms, when you use your debit card your account is being debited for the sum you spend. Some debit cards can be used even when you don’t have enough money in your account. This is called overdraft and your bank will decide if and how much overdraft to give you, based on your circumstances and spending history.
Difference Between Debt and Debit
While debit is an accounting term referring to money leaving your account, debt is the actual money you borrowed from somebody and have to pay back, with or without interest. Examples of debt include mortgages or other loans you take from your bank, as well as bonds and commercial paper. When you take out a loan, your account is credited for the sum taken. When you make your monthly loan repayments, your account is debited.
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