In accounting, the terms debit and credit are fundamental concepts used to record transactions in a double-entry system.
Debit (a): In accounting terms, a debit signifies an increase in assets or expenses and a decrease in liabilities or equity. For instance, when you buy office supplies with cash, you would debit the office supplies account to show that you now have more supplies. Debits are always recorded on the left side of a ledger.
Credit (b): Conversely, a credit indicates a decrease in assets or expenses and an increase in liabilities or equity. Continuing with the previous example, when you purchase office supplies and pay cash, you would also need to credit the cash account, reflecting the fact that you have less cash now. Credits are recorded on the right side of a ledger.
Not Applicable (c): This designation is used when a particular transaction or element does not pertain to the accounting context at hand. For example, if a type of transaction doesn’t fit neatly into either the debit or credit categories, it might be marked as not applicable. This helps keep records clear and precise by indicating that no action is needed in the debit/credit framework.
In summary, understanding the distinctions between debits, credits, and what is not applicable is crucial for maintaining accurate financial records and ensures that the accounting equation (Assets = Liabilities + Equity) always remains balanced.