Most people get a bit confused with the terms “debit” and “credit” when it comes to bookkeeping. This is also true of small business owners who may not be familiar with the different terms that accountants and other financial personnel use in day-to-day business.

Most people get a bit confused with the terms “debit” and “credit” when it comes to bookkeeping. This is also true of small business owners who may not be familiar with the different terms that accountants and other financial personnel use in day-to-day business. In the formal bookkeeping and accounting areas, the debit and credit have complete opposite meanings. Both terms come from Latin words, “debit” comes from debere, which means “to owe”, and “credit” comes from credere, which means “to believe”.

When it comes to the bookkeeping world, a debit is usually on the left side of a general ledger, or GL, while the credits are on the right side of the general ledger. Some bookkeeping and accounting software complicates the understanding of these terms by placing the debits as a positive value and the credits as a negative, which is opposite of their meanings and uses, but the software uses these numbers for their calculations. This has become a major area of confusion for small business owners who are learning to depend on themselves for bookkeeping and accounting when they have never had to do it before.

For small business owners, there are many different software packages out there that will automatically calculate your bills and payments for you, as well as balance your books at the end of the month. But, these can be filled with errors if you aren't sure what you are doing. So, it is also useful to keep a written log for your general ledger so you can easily see where your money is going and what money is coming in. When you begin keeping a general ledger for your business, remember that debit entries are made on the left side of the line and the credit entries are made on the right side. It is best not to list either side (debit or credit) as a negative or positive value, as this can only complicate matters for beginners.

With the use of the term “debit” for charge cards for checking accounts, the whole idea of a debit being a bill that you pay has become even more messy. Just remember that when it comes to your business's money and accounting, anything that decreases a balance that you, or your business, owes is a debit. (This includes items such as your building payment, inventory payments, phone bills, and credit card bills.) Anything that increases your business's balance is a credit. (This includes items such as customer payments and purchases.)

When you can keep the debits and the credits separated and you understand which is which, you will have a much easier time keeping up with your business's general ledger and keeping your business's finances under control.