When considering the source of payment, debit represents assets (debit side) and credit represents liabilities (credit side). Debit indicates the right to claim, while credit indicates the obligation to be claimed. This allows you to issue a debit note to the other party.
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Accounting Systems in Indonesia
The adoption rate of SaaS-based accounting systems in Indonesia is less than 8%, despite the advancement of SaaS technology. The continuous launch of new…
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What this article covers
- Debit represents assets, and credit represents liabilities.
- Almost 100% of people in Indonesia have a debit card.
- A debit note indicates an increase in assets, while a credit note indicates a decrease.
- Credit notes help resolve disputes with customers.
- Credit is used to indicate the occurrence of liabilities.
Debit Cards and Credit Cards
When you open an account at a bank in Indonesia, the ATM card (cash card) comes with a debit card function. Almost 100% of Indonesians living a normal social life have a debit card. When I asked my wife about the difference between a debit card and a credit card, she answered,
though she seemed annoyed, but I think this is an essential understanding. In accounting terms, the money that is the source of payment is an asset account, so the normal balance is debit (debit side). A debit card is issued by the bank to pay from your own account, while a credit card is used to pay by borrowing money from the credit card company. Based on the source of payment, debit is an asset (debit side) and credit is a liability (credit side), which is the most confusing point.
Debit Notes and Credit Notes
Debit notes and credit notes can cause confusion in accounting processes. When I first came to Indonesia, a project was prolonged, and a customer said, "We will bill you for the delay with a debit note," and I didn't understand what it meant.
When a system company bills for service fees, they issue an invoice, but if the implemented system does not work properly, and the customer demands a refund, a debit note is issued. From the system company's perspective, instead of directly reducing the amount billed on the invoice, a credit note is issued to indirectly reduce it.
A debit note is used to partially refund the money paid (increase in assets), and a credit note is used to partially refund the money received (decrease in assets). These are used for claims where no payment or receipt occurs.
By indirectly reducing assets, such as accumulated depreciation or allowance for doubtful accounts, it clearly leaves evidence of how much originally occurred.
Case: There is a case where a system company smoothly resolved a dispute with a customer by issuing a credit note.
Takeaway: Debit notes and credit notes are important tools for indirectly adjusting increases and decreases in assets.
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Indirect Deduction of Manufacturing Costs and COGS through Account Transfers
Indirect deduction of manufacturing costs and COGS through account transfers involves processing spoilage costs without directly reducing WIP or…
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The Meaning of the Term "Credit"
Last year, I purchased a software package and additional licenses. I acquired licenses for two users in total, but a month later, the software was upgraded, and the new version allowed three users with just the main package, without additional licenses. However, regarding the additional licenses purchased for the old version, it was said to be "di-creditkan."
When I asked,
was the response, and I understood the meaning for the first time. In short, instead of saying "di-batalkan" (canceled), it was expressed more complexly as "di-creditkan." This means a decrease in licenses, or a decrease in assets, hence the use of the term credit.
Additionally, this blog uses photos from Shutterstock, and some photos require credit (editorial notation required). In this case, the author's name and shutterstock.com are displayed and linked below the photo. This is to clearly indicate "this photo is not mine but borrowed," signifying the occurrence of a liability, hence the credit (credit side).
Frequently Asked Questions | Differences Between Debit and Credit
Based on the content of this article, frequently asked questions are briefly organized.
What is the difference between a debit card and a credit card?
A debit card is a card that pays directly from your account, while a credit card is a card that pays with money borrowed from the card company. Debit is an asset (debit side), and credit is a liability (credit side) in accounting.
How are debit notes and credit notes used?
Debit notes are used to partially refund money paid, indicating an increase in assets. Credit notes are used to partially refund money received, indicating a decrease in assets. These are used for claims where no payment or receipt occurs.
What does the term "credit" mean?
The term "credit" is used to indicate a decrease in assets or the occurrence of a liability. For example, it is used when a license expires or when credit must be indicated for photo usage.