Debits and Credits in a Business are two terms that may be misunderstood at first. To understand what is meant by these terms you must first understand what a Debenture is.
A Debenture is a legal agreement between a lender and borrower. The borrower makes the loan payment and pays the money to the lender. The lender then issues a Certificate of Deposit or CD which holds the money. The terms of the agreement are the same as if the money was in the bank account, but the system is totally different.
In our modern-day world where the majority of transactions are done using credit cards and debit cards, it is not unusual for a consumer to forget that they borrowed the money and have an account with the business where the money is being kept. A borrower's reputation can be ruined by a transaction and this can cause a financial hardship in the future.
As an owner of a business it is of prime importance that you are aware of the terms of your own debits and credits in a business. A business owner must also understand what each debenture means.
Debenture is the legal term used to refer to the money, certificates or checks that a business keeps. The original debt is called a debenture. If the business loses money or becomes insolvent, the money is still held in the bank account as a debenture.
The certificate is a promissory note or other written agreement. This is in most cases called a Debenture. If the company does not have the cash to make the required payments to the lender, it is advisable to have the cash in the form of a check or debit card. A deposit account will hold the money until it has been paid back.
It is important that the business owner understands that credit cards and bank accounts are not acceptable forms of money to use in the event of a financial emergency. It is wise to use credit cards and the corresponding debit cards in order to avoid a problem later on. It is a good idea to think about this point before the company starts taking orders.
It is always best to use cash, checks and credit cards when making any purchase over a store credit. If the store does not have the cash available for the amount of money the customer needs, there will be no problem and you can still get the item.
Debits and Credits in a Business are both used in all commercial businesses. They are not used in the case of personal business. You can buy a house and use cash or a credit card, this is not the case in the case of a commercial business.
Once the business is up and running, the credit card and debit cards become the preferred forms of money for the business. There is nothing more important than keeping good cash flow and being responsible in the credit of the business.
Business owners should remember that all credit should be maintained in a business and never, under any circumstances, give out money to customers that is not absolutely necessary. Any business owner who does this will cause his business to fail.
Debits and Credits in a Business are meant to ensure that a business is solvent. Any business owner can use these terms when discussing the state of the business.