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Accounting is necessary for the operation of the enterprise because it allows receiving income from the work of the company, record all receipts of funds, expenses. Accounting data is constantly changing depending on the operation of the enterprise. The concepts of debit and credit are among the main ones in accounting. Credit and debit-performance indicators of the enterprise allow checking the company’s stability and profitability. Proper accounting documentation is essential, first of all, for the organization itself.
Debit is the arrival of funds, the profit of the company. The sources of income can be different: sales of products, provision of services, payments of funds by creditors. By debiting the active balance sheet accounts, meaning the company’s asset registration accounts, assets at the beginning of the reporting period, and their increase during the reporting period are indicated. For example, when funds are credited to the current account, the received amount is reflected in the account debit. On the debit of the passive balance sheet accounts, meaning the accounts of the registration of the enterprise sources, a decrease in the sources of funds is reflected. For example, if an enterprise receives a loss based on the results of the reporting period, the amount of the loss is reflected in the debit.
Credit describes an item of expenditure and includes the payment of salaries to employees, the cost of purchasing products and their transportation, taxes and various fees, and raw materials for production. The loan to the active balance sheet accounts reflects a decrease in the corresponding assets. For example, when paying from a checking account, the payment is reflected on the account credit. For the credit of passive accounts, the availability of the company’s sources of funds at the beginning of the reporting period and their increase during the reporting period are indicated. For example, the profit received by the enterprise at the end of the reporting period is reflected on the credit of the account, thereby increasing the sources of funds of the enterprise.
In conclusion, in order to determine in which case the credit and debit rise or fall, it needs to correctly determine what was spent or whether the funds were earned. It is necessary to monitor the expenses and income of the company carefully and ensure that the debit and credit converge in the amounts for the reporting period. This is necessary to assess how the company is growing financially or its existence is not profitable.
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