Debit: A record of money owed by a company, or the act of recording such a debt.
Debit refers to a record of money owed by a company or an individual, or the act of recording such a debt. In accounting, debit is used to record an increase in an asset or a decrease in a liability or equity. It is the opposite of credit, which is used to record an increase in a liability or equity or a decrease in an asset.
When a company or individual incurs a debt, they may record the transaction as a debit in their accounting records. For example, if a company purchases raw materials on credit, they may record the transaction as a debit to their raw materials inventory account and a credit to their accounts payable account.
Similarly, if a company pays off a debt, they may record the transaction as a debit to their accounts payable account and a credit to their cash account. Debits and credits are used to keep track of all financial transactions within a company and are an essential component of the double-entry bookkeeping system.
In addition to being used to record financial transactions, debits are also used to indicate when an account is overdrawn or has a negative balance. For example, if a company withdraws more cash from their bank account than they have available, the account may have a negative balance, which would be recorded as a debit.
Overall, debit is an important concept in accounting and is used to record a variety of financial transactions, including the incurrence of debt and the movement of assets and liabilities. By carefully tracking debits and credits, companies can maintain accurate financial records and ensure that they are meeting their financial obligations.