How to Learn Debits & Credits

How to Learn Debits & Credits thumbnail
A calculator comes in handy when paying bills.

Because debits and credits are the basics of finance, it is important to understand how they function before opening a checking or savings account. It's important to keep in mind that each transaction has two sides: one account is being credited or debited while another account is being debited or credited, respectively. Read on to learn about how to learn debits and credits.

Things You'll Need

  • Transaction register
  • Checking or savings account
  • Calculator
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Instructions

    • 1

      Understand the difference between a debit and a credit. A debit is when money is taken out of an account. (Use the following memory aid: If you remove the 'i' from debit, it spells debt.) A credit is when money is put into your account. The minus sign is often used to represent a debit, and a plus sign is often used to represent a credit.

    • 2

      Record all debits and credits in a transaction register. Be sure to record the check number (if applicable), date, description of the transaction, amount of the debit (withdrawal) or credit (deposit), and remaining balance on the account. Calculate the balance with a calculator for greater accuracy. For checks, you will want to check your account periodically to see if a check has cleared. When the check clears, mark it in your transaction register.

    • 3

      Assess your checking or savings account whenever possible. If you have on-line banking, check it daily. You want to make sure there is enough money in the account to cover all pending debits. As a rule of thumb, account credits should equal more than debits. If you overdraw your account, the bank will assess a fee. Use the transaction register to check that the bank has withdrawn or deposited the correct amounts for the account.

    • 4

      Remember that when your account is credited, another account is debited. Conversely, if one account is debited then another account is credited. There will always be an equal exchange.

    • 5

      Know how much money is received and where it comes from.

Tips & Warnings

  • Check your finances every day to ensure there is enough money to cover all debits.

  • Teach your children the difference between credits and debits, so they are better prepared to manage their finances as adults.

  • If you don't have enough credits to cover debits, your account will be withdrawn. Your bank may assess a fee.

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