08 Feb 2022 | Edukatips

Understanding the Term Debit in Accounting and Banking

Debit is a term often used in finance, accounting, and banking. The use of this term is always followed by Credit in bookkeeping or financial balance. The totals of the debits and credits must always equal each other in order for its books to balance.

In general, debits do not always equate to increases and credits do not always equate to decreases. See the explanation for more details below!

What is Debit?

Debit is an accounting entry that records assets and decreases a liability at the same time. A debit entry must be made when there is an increase in assets, expenses, revenues, liabilities, income deductions, and equity.

A debit entry is usually positioned on the left side of a ledger account, while credit entry is on the right. When the debits increase, the credits decrease, or vice versa.

The term debit comes from the Latin word “debere”. It represents the addition of an asset or expense in accounting. Debit can also be seen as debt or receivables from one party to another that must be billed.

Determining Debit or Credit

It can seem a little confusing to understand debits and credits. And for that reason, you must first familiarize yourself with the terms surrounding debits and credits. Take a look at the terms below:

  1. Asset
    Asset can also be called wealth. When there is an increase in an asset, a debit entry is made. Conversely, a credit entry is made when there is a decrease in an asset.
  2. Liability
    A liability is an obligation that is payable to another person/entity. For example, when a person borrows Rp100,000, he will own an asset of Rp100,000. However, it should also be noted that this value represents a financial obligation or debt that must be settled.
  3. Owner’s Equity
    Owner’s equity refers to the amount of money of a person or an entity. To calculate it, you have to look at the total assets, minus its liabilities.
  4. Income
    Income is the money obtained from a business. It will later be recorded in the asset value.
  5. Expenses
    On the other hand, an expense is the cost that is incurred for business operation. The records of expenses and income must be carefully monitored in the balance sheet.

The Definition of Debit in Banking

The term debit is used for banking transactions and services. You must have heard about or even own a debit card yourself. Well, a debit card can used for banking transactions, such as payments, fund transfers, or cash withdrawals from an ATM.

To use a debit card, you first need to deposit funds at the bank that issued the card. The funds represent your asset in banking. It means your debit card can only be used for transactions based on the assets you own in the bank account.

You can add funds – according to the type of savings – into an account that is connected to a debit card. If you have a Simpanan Pelajar (SimPel) BCA, the maximum limit for a debit card is Rp20 million.

Furthermore, please note that BCA has a debit card spending limit based on the savings type you own.  Make sure that you have sufficient balance because the bank will deactivate your debit card if you have zero balance for a certain period of time.

You can use Debit Online BCA, a feature of Debit BCA Mastercard that offers easy transaction payments on various sites, apps, or online services. Enjoy the convenience of online debit activation and managing transactions through your smartphone.

A debit card will certainly help you go about your day. Do you own a BCA debit card yet? For more information, click here.