What is debit and credit on the balance sheet?

The balance sheet has two sides: debit and credit. They are two accounting terms that you always come across when you are doing accounting. To the debit side are your assets, such as your stock and machinery. On the credit side you can see where the money comes from, for example through equity or a loan.  
 
At this blog we explain when sth. is credit or debit and what these terms mean for the financial health of je company. 

The balance sheet: financial overview of your organisation

The balance sheet is an important financial statement that shows how your organisation is doing at a specific time. It is always a snapshot in time: today's balance sheet may be different from last month's. On the one hand, the balance sheet shows what you own; on the other, it shows how those assets are financed. 
Many companies produce an annual balance sheet because it is a obligatory part of the financial statements. But you can also draw up a balance sheet in the interim, for instance if you want to apply for a loan or attract investors. A good balance sheet gives you a clear picture of your company's financial health. It helps you identify risks, such as a tight cash flow, and provides a solid basis for making financial decisions. 

What does debit mean?

Debit meaning: Debit derives from the Latin word ‘debere’ which can be translated as ‘to be owed’. Debit is the left side of the balance sheet and consists of everything your company owns or owes. We also call this the assets. Assets show how you use your company's capital and are divided into two categories: fixed assets and current assets. 

• Fixed assets are possessions that you use for long periods of time. Think of the office building, machinery and company cars. But it also includes non-tangible assets, such as brand names, patents and intellectual property. 

• Current assets are assets that can be converted into cash in the short term, such as your stock, debtors (customers who have yet to pay you) and cash.  

In this blog, the assets on the balance sheet fully explained.

What is a debtor?

A debtor is a customer who has received an invoice from your company but has not yet paid it.  
Example of a debtor: 
Suppose your company provides IT services. You have entered into a contract with a customer for an annual software licence of €10,000. After delivery, you send an invoice with a payment term of 30 days. Until the customer pays the invoice, the customer is a debtor and the outstanding amount of €10,000 appears on your balance sheet under current assets. Has the invoice been paid? Then the customer is no longer a debtor.
It is important to have a good overview of outstanding debtors to keep your company's cash flow optimal. With a good accounts receivable you always know exactly which invoices are still outstanding. Has the payment deadline expired and the money still not arrived? Then send the customer a payment reminder as soon as possible. Sometimes it is smart to give the customer a call. Perhaps there is something unclear about the invoice or the customer simply overlooked it. With a dedicated debtor management programme, you can manage this process more efficiently. Tight debtor management strengthens your company's liquidity and financial stability. 

What does credit?

Credit comes from the Latin word ‘credere’ and means ‘to entrust’. Credit is the right side of the balance sheet and shows how you have financed the assets. On the credit side are the ‘liabilities’. Liabilities consist of two main components: equity and debt. 

• Equity is the difference between what you own and what you still have to pay, or assets minus liabilities. 

• Foreign equity consists of all the debts of a company, such as loans from the bank or outstanding invoices to suppliers (creditors). 

In this blog, the liabilities on the balance sheet fully explained.

What are creditors?

A creditor is a supplier to whom you still have to pay money for goods or services delivered. A creditor is also called a creditor. 
Example of a creditor: 
Suppose your company has ordered office supplies from a supplier worth €5,000. After delivery, you receive an invoice with a payment term of 30 days. Until this invoice is paid, your supplier is considered a creditor, and the amount of €5,000 appears on the balance sheet under loan capital. 
Suppliers who deliver ‘on credit’ offer you temporary financial leeway: as long as their invoices have not yet been paid, you can use that money for other things.This is convenient, but it requires careful monitoring. With a good accounts payable ensure that payments are made on time. This prevents late payments and hassles with reminders. In addition, of course, you want to maintain a good relationship with suppliers. 
With an accounts payable management programme, you know exactly which invoices are outstanding and when they are due for payment. This way, you limit financial risks and ensure that your company remains financially healthy.

Simplify your crediHours administration with SimpledCard

SimpledCard makes managing your business expenses simple and straightforward. With mobile claims management you gain insight into your accounts payable and keep a grip on all payments. 
Employees pay with SimpledCard cards which have preset limits. You have real-time access to the transaction history and balance of all passes.Employees easily scan in all receipts via the mobile app and are automatically linked to the correct transactions. This prevents errors, fraud and ambiguity in the administration. It is possible to link the SimpledCard system to your accounting system.

Request a demo now

Wondering how you can work with SimpledCard the creditsilk and debitsilk on your balance sheet? We will help you om mapping your organisation's expenditure management. Request a free demo today. Make your administration smarter, more efficient and fully digital!

FAQ

What is the difference between debit and credit on the balance sheet?
Debit shows what you own (assets), such as stocks and machinery, while credit shows how these assets are financed (liabilities), for example by equity or loans.
What does debit mean?
Debit refers to the left side of the balance sheet, where everything your company owns is listed, such as fixed and current assets (e.g. machinery, inventory and debtors).
What is a debtor?
A debtor is a customer who has not yet paid an invoice. The outstanding amount comes under current assets until it is paid.
What does credit mean?
Credit means the right side of the balance sheet, where you see the financing of your assets. It consists of equity (what you own minus your debts) and debt (loans or outstanding invoices).
What are creditors?
Creditors are suppliers to whom you still owe money for goods or services delivered. This amount is shown on the balance sheet under liabilities.