Debit and Credit

Let's start off with the most fundamental topic in the field of finance. I saw many people around me who get confused with the usage of the terms debit and a credit. A debit and a credit form the most basic elements for financial transactions.

It all depends on the situation where these terms are used. A debit is not always positive and a credit is not always negative. The balance on an account is either a debit or a credit but not a positive or negative. It all depends on the type of accounts where these transactions take place.

To understand in a better way, we take an example of each. It is almost always assumed that a debit decreases the balance and a credit increases the balance. Though this is true in case of a savings account where you use your debit card, it is not always true.

Accounts which deal with dividends, expenses and losses increase in value when debited. This is because by debiting you are actually decreasing your loss and thereby increasing your value.
Opposite is the way with gains, income or savings accounts where a debit transaction increases the value and a credit transaction decreases the value.

So it all depends on the type of account you are crediting or debiting. The same is the case with the credit card account we generally use. By using your credit card, you make debit transactions and thereby decreasing your value. This is because, the more you use your credit card, the more you owe your bank. So a credit transaction here means, you are actually paying your debit and thereby increasing your value. Your payment for a credit card bill is a credit, where as, your usage of credit card is a debit.

It's all in the type of account these transactions take place.

Welcome to my blog!

Welcome readers! First of all I wish you all a very happy and prosperous new year 2008! I am new to blogging and the main intention of starting this blog is to educate the readers about everything and anything related to finance and investments. That is the reason why i called this blog a money guide. I hope you will find my posts useful, interesting and knowledgeable.

Everyone in this world invests money in a variety of ways, may it be stocks, funds, gold or just fixed deposits, but the sole aim behind this is to generate handsome returns. As an investor i feel if an individual understands the basics of investing or if he well versed with the financial jargaon, then he could be more successful in his venture of generating more returns and increasing his capital. In this regard, i hope this blog will educate the readers to the maximum extent. Thus, do understand the basics, implement your knowledge and benefit from the returns.

I will be glad to receive comments, if any, from my readers. Please do post comments and i assure you i will reply if needed to them.

Once again, i wish this new year brings you happiness and lot of returns on your investments. Finally, i once again reiterate the three terms: Understand, implement and benefit.