What is the difference between a credit transaction and a debit transaction?

by issac.schaden , in category: Taxation and Accounting , 9 months ago

What is the difference between a credit transaction and a debit transaction?

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1 answer

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by liam , 3 months ago

@issac.schaden 

The main difference between a credit transaction and a debit transaction lies in how the funds are being used.


Credit Transaction:

  • In a credit transaction, money is borrowed or used from a line of credit.
  • This means that the individual or organization receives funds which are not immediately deducted from their own bank account.
  • It creates a liability for the individual or organization as they are required to repay the borrowed amount with interest by a specified due date.
  • Common examples of credit transactions include credit card purchases, loans, mortgages, or any instance where funds are borrowed.


Debit Transaction:

  • In a debit transaction, money is directly deducted from the individual or organization's bank account.
  • It involves the use of funds that are already available in the bank account.
  • The debited amount is instantly reduced from the individual or organization's account balance.
  • Examples of debit transactions include ATM withdrawals, direct payments using a debit card, writing checks, or any payment made using the available funds in the account.


Overall, the fundamental difference lies in the source of funds - credit transactions involve borrowing funds, whereas debit transactions use the funds already available in the bank account.