Debit and credit
Also called: debit, credit entry · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 7, Ch 8 "Banks and the Magic of Finance"
Meaning
A debit is an entry that takes money out of an account. A credit is an entry that puts money into an account. Every transaction in a bank account is recorded as one or the other. Reading them correctly tells you how your balance changed.
Example
Your salary of ₹20,000 reaches your account. That is a credit. You then pay ₹5,000 rent by cheque, which is a debit. Your balance rises by ₹20,000 and then falls by ₹5,000, and the passbook shows both entries.
Don't confuse with
- Credit meaning a loan: in banking, "credit" can also mean a loan, as in "terms of credit". A credit entry in your account only means money came in.
Related concepts
- Deposits
- Savings account
- Current deposit account
- Fixed deposit
- Demand deposits
- Cheque
- Passbook
- Interest
- Compound interest
- Interest rate spread