Cash has been a predominantly inevitable part of our day-to-day lives, knowing about its full potential functionality in specific areas of exchange helps us to efficiently ease our regular transactions history of trade and purchase. Let us know more detail about ‘Is Cash Credit Or Debit?’.
Is Cash Credit Or Debit?
This statement eventually leads to our topic: is cash credit or debit? The simple generic answer is debit, but there are numerous layers of understanding behind this that are specific to the purpose and domain for which the cash form of exchange is being employed.
What is cash?
Cash is a well known phrase in today’s world which is a type of paper money used for the exchange of trade that acts as an official legal tender to premise transactions. It enables the method of payment and savings option making it a significant element of financial statements.
The power withheld by cash compels the fact that undoubtedly cash falls under the asset category of all profit and loss statements. There are various purposes for which the cash as a current asset can be used, prevailing it is fluid for transactions.
Why Cash as a Transaction Method?
Cash has always been a dominant payment method in our society.
- It gives a feeling of ownership to individuals as there is no third party being involved in transactions.
- It is also a much more secure way of money transactions as it is proven to be secure from cybercrime and fraud compared to other digital cashless transaction methods.
- On the other hand, cash ensures the privacy of the individual’s financial data, and the identity of account details are enclosed and not revealed to the payee.
- Cash is inclusive to all groups of people who have limited to no access to digital transactions making it a flexible mode of payment.
- Cash being a tangible element gives a constant reminder on the spending leisure enabling us to not overspend and to have a closer look at the expenditure.
- The durability and Portability feature of cash makes it a feasible payment method.
What are credit and debit?
The perspective of this concept lies with the flow of money. In an accounting entry when there is an increase in assets or a decrease in liability it is called debit and vice versa an increase in liability and decrease in assets is credit.
A much simpler understanding of this is that the money one owns is a debt while the money that one borrows is credit. A clear clarity on the concept of credit and debit will headway in our perspective to our question: is cash credit or debit?
Is cash credit or debit?
Now that we know about credit and debt in financial and accounting aspects, let us get to know whether cash under financial statements will go under credit or debit.
Cash is an asset in any financial position. As per the rule of accounting:
- Anything that comes in is debit and anything that goes out is credit
- All expenses and losses are debits and all incomes and gains are credit
- Debit the receiver and credit the receiver.
Thus, depending on where the cash belongs on the accounting statement determines if it’s a credit or debit. For instance, when there is an increase in assets ultimately there is a need to debit the asset. Similarly, when it comes to cash under financial statements, It is debit when there is an increase in cash and credit when there is a decrease in cash.
A more practical example in our day-to-day life would be when a company says X buys some products for their office like say some furniture through cash payment then the cash through their company account will decrease making that cash a credit.
Likewise when the same company X receives an amount through cash from their customer for the company service then the cash there will be a debit and the cash will be later deposited to their company account or will be held as a current asset and later used for making direct cash payments.
In the financial aspect, it does matter whether the cash is used for large or small transaction history
for the cash to be a debit or credit. From an accounting point of view, cash is always an asset under the balance sheet and is referred to as a current asset.
Conclusion
Now that we have determined an answer to our question if cash is debit or credit, could we furthermore define it as one or the other of either two options?
In conclusion, cash is predominantly a debit as it is an asset that brings about and enables rapid and secure transactions to any kind of business thus making cash manage the capital structure of the financial empire.
Hope this blog was helpful, informative, and answers the questions that you were looking for.
