What is debit and credit in the ledger? What Is the Difference Between a Debit and a Credit?

 


A simple ledger is a record of every single transaction a business makes. Each ledger has accounts and entries that represent these transactions. There are two sections in a simple ledger - a debit side and a credit side. For each transaction, you enter a debit and a credit entry in the ledger. In the end, the balance on both sides should be the same.


When I was a kid learning accounts in school my teacher taught us three golden rules for the credit debit entry book.


  • Debit what comes in and credit what goes out.

  • The one who is receiving the money is debited in the credit debit entry book. The one who is giving money is credited. 

  • The expenses or losses are shown as a debit entry and incomes or gains are shown as a credit entry.



Difference between credit and debit entries

The debit and credit entries are made in the 3 main accounts in any business.


  • Personal - Drawing money for research or paying the staff. The expenses that you incur while running your business.

  • Real - Your assets like furniture, machines, etc. And your liabilities 

  • Nominal -  Your income or revenue. Also any profit or loss you make in your business transaction.

Let me explain the difference between credit and debit entries with a few examples of entries made in the credit debit entry book. 


Example 1: You buy raw material for your business from Mr. X. Raw material coming in will be a credit in the assets account. Money payable to Mr. X goes into expenses also known as expense khata and is shown as credit.

Example 2: When you make a sale to Mr. A, in a simple ledger you must make a credit entry for the money you earned in the revenue/income account. For the same transaction, you debit your expense account. 


Making so many transactions and then recording them on the right side of a ledger can be time-consuming and challenging. Digichal is a digital khata app that is the best billing app for mobile that will save you time in creating the entries and managing your finances. Download the app and devote yourself to more critical business tasks.


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Also, Visit What is Khata Book App? and the benefits of digital khata

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