What is Debit and Credit

Debit and Credit Box

Now let us understand two most used terms in Financial Statements. These are the most misunderstood accounting terms. If I ask you to give the understanding or definition of Debit and Credit everyone will have their own definition. Debit and Credit by itself has got no meaning.

For example in a game of chess before the last pawn is moved, the player says checkmate. The term checkmate by itself has got no meaning. However in context of the game of chess it has meaning.

Similarly in football they have on-side, off-side, D-box, penalty shoot-out, Golden Goal. These terms by itself they have no meaning. However in relation to football it has meaning.

In the same manner Debit and Credit by itself has got no meaning. Only in context to accounting and the double entry system of book-keeping it has got some meaning. Every financial transaction will have an impact on two accounting heads simultaneously. That is what double entry is all about. Double Entry means something is entered twice.

So every financial transaction will have an impact on two accounting heads simultaneously. ‘Debit’ and ‘Credit’ denotes two opposite effects of one transaction on two accounting heads.

We have just understood that – Every Financial transaction has to be Expense or Income or Liability or Asset.

Among these two must be Debit and two must be Credit. Now the question is. Which is debit? And which is credit?

Expenses are it Debit or Credit? What about Incomes? Is it Debit or Credit? What about Liabilities and Assets? Which is debit and which is Credit?

Expenses are Debit. Incomes are Credit. Liabilities are Credit. Assets are Debit. However you do not need to learn this as a law. Let us try and use our common sense. If Expenses and Asset are Debit and if Income and Liabilities are Credit there has to be some similarity between them. What is the similarity?

The similarity between Expense and Assets is money goes out of the business. Similarly the similarity between Income and Liabilities is that money comes in to the business. Expenses, money is going out of the business. Assets you may say we have got land and machinery. But to purchase the land and machinery money goes out of the business. That is the reason it is important to see from a business perspective and not from an owner’s perspective. From the business perspective if the money is going out of the business either it becomes and Expenses or creates an Asset. Money is coming in to the business. If it is by selling the product or service it is called Income. If money comes in to the business because of borrowing then it becomes a Liability.


Online Mortgage calculators

Mortgage calculator

When you are going to apply for a mortgage you know how much loan you want. But you do not know the rate of interest and the amount of installment you need to pay monthly for your mortgage. You do not need to rack your brains, as there are many options of mortgage calculator available on the internet. You can even make your own mortgage calculator on Microsoft Excel. I am going to review a few of the best mortgage calculators available online and also review the information you need to put in there. Ferratum also has an interesting calculator that can come in handy.

3 Best Mortgage calculators online

You can get amazing mortgage calculators on the internet and can use the same to review your mortgage. The ones I use to review and get good results are:

  • Mortgagecalculator.org – This is one of the best mortgage calculator tools. It includes property tax and PMI along with loan amount, rate and tenure to give a very realistic calculation of your installments. It even gives a comparison of monthly and bi-weekly payments. It also gives information about how much interest you are paying and the total amount of interest paid. According to me it is the best mortgage calculator available online.
  • moneychimp.com  – This is a simple calculator and includes a graph to show you the decrease in debt over a period of time. It is best for people who are finance novices just because of its simplicity. It simply gives your monthly installment and is easy to understand. Just includes the three essential fields of Amount, rate and tenure.
  • bankrate.com – This also provides the simple calculator. The additional feature is the average mortgage rates highlighted on the sidebar. This will help you to bargain with the mortgage company.

Taking all these three calculators together will help you get the best rates and also know about the money you should keep handy when buying a mortgage.

Financial Lessons You should teach Your Children

Finance for children

Money a creation of man is the most sought after commodity in the scenario presently. It is essential for living, business or getting services or buying products. Hence good management is required to keep our head above water. Children also need to know about money. They should not be ignorant of its importance and use. As soon as your child becomes aware of the use of money start teaching him basic money handling techniques. The lessons at the tender age will help him/her to become good money managers later in their life.

  • Allowance/Pocket Money: The first tryst with using money is to provide you child with a monthly/weekly allowance. Reward him/her with a raise if the buying behavior is good. The money should be spent without parental monitoring. This will instill confidence and drive your child towards financial independence.
  • Saving: One of the traditional ways to teach saving is to buy a piggy bank. It is an old idea but instills the saving habit. Motivate your child to save some part of allowance. Show him/her how the saving can help in times of need. This will go a long way in instilling financial discipline.
  • Opening a bank account: After a stint with allowance and saving, open a minor bank account in the bank. Teach him how interest is paid on the money kept in the account. Teach him to withdraw money and also to save for some long-term goals like buying an expensive book or game. Teach him to deposit the savings, and show him how money will earn compound interest. The practice will help in knowing how a bank works and he/she will become aware about the various financial terms.
  • Budgeting: After opening a bank account teach your child how to manage money by budgeting. Take him out for shopping in the market and let him buy with his allowance. Show him/her how you set aside money for grocery, bills and savings. Suggest him to save a percentage of allowance as a saving and make deposits in the bank after the saving is say $100.
  • Charity: Also motivate to spend some money on charity. It may be 50 pence, but it will teach him/her how to use money emphatically.

These basic things taught to children in early age will make them a good human being as they will be financially disciplined and will use money prudently later in their life. It has been observed in a recent survey that children who are taught money management at an early age rarely face money problems in their lives. So, start today to make your child’s future bright.

Financial Conditions of the World


World as a global village

World as a global village

As financial and economic reports emerge from one country, others keep a close eye on how they will perform. Even though this may seem to be unnecessary, the current global operation of businesses is as important to other nations as it is to our own. Markets are watching the New Zealand Reserve Bank’s financial stability report to see how the outcomes of the housing market and subsequent interest rates will affect inflation. This idea of watching the performance of other economies is at the heart of the money machine to allow an appreciation of currencies. Such close following of neighbouring and world economies is at the heart of trading, and with China being New Zealand’s largest trading partner, all eyes are fixed on their “monthly data dump”. China is expected to perform in a stable, but improving position which is good news for us as we to look return to surplus within a year. On the other side of coin is Australia, as a new package looks set to bear the brunt of another four of deficits. All of these small nuances have a profound effect on our daily lives. They will dictate our markets, to some extent, and subsequently alter the ways in which our policies and economic packages are released.

All of the small fluctuations mentioned in my last post have a strong bearing on the standing of individual companies. But when we work for them, and are after just enough to survive, it is all to easy to overlook the market forces above our heads. It perhaps isn’t our duty to do so, but to understand the economic forces at play will allow us to put our position into a better perspective. In New Zealand, we enjoy a good standard of living and our economy is in a strong position. Perhaps it is down to small changes, that can have a profound effect over the country’s inhabitants.

Tourism in New Zealand : The Shining Star

New Zealand is one of the hottest destinations for tourists. With its exotic locales and beautiful scenery, it attracts people from all over the world. In fact tourism is a $30 billion industry and contributes significantly to the economy.

Only the export earnings are around $10 billion. Also the sector directly employs around 6 percent of the total workforce. Also it facilitates employment across various sectors directly or indirectly linked to tourism. The industries which benefit are air transport, hotel, food and beverages and many more.

Tourism in New Zealand

The Exotic New Zealand

This is one of the sectors which have kept New Zealand going in wake of the Global financial crisis. Some of the highlights of the success are:

  • Constant Growth – The industry has been growing at a rapid pace in spite of the financial crisis. It has been steady and helped the economy to remain stable.
  • Rise of the Domestic Tourist – It is not only the people from other countries. The citizens of New Zealand are contributing heavily. Last year the share of domestic tourist’s spending was 61 percent adding robustness to the sector.
  • Air connectivity – There was more activity on the airline transport. This led to the export freight costs going down. This was a boon to the Airlines as well the economy as a whole.
  • Increase in Traffic – Most of the tourists used to be from Australia and China, but the ongoing financial crisis has pushed more tourism from Europe and the United States.

Overall the Tourism industry has been the face saver for New Zealand. It has grown amidst difficulties, stabilizing the economy and becoming the most sought after sector. Way to Go!!!

New Zealand : The Safe Haven

The whole world is currently experiencing the aftermath of the slowdown. A series of earthquakes affected the economy for the last two years. But the recovery has been phenomenal.

Balance between Economy and Environment

Balance between Economy and Environment

It is one of the few economies which have kept the balance between environmental protection and growth. China’s condition due to neglect of environment is for everyone to see. Accelerated growth and fiscal surplus are rosy signs for the economy. Known for its dairy products world over, New Zealand is likely to have the highest growth in the world.

The New Zealand Dollar also has been steady showing the economy’s strength. It has moved with the US Dollar and has shown remarkable recovery after the slide.

The New Zealand Dollar also has been steady showing the economy’s strength. It has moved with the US Dollar and has shown remarkable recovery after the slide.

New Zealand also scores high on economic freedom index. Rather it is on the top of the list with a score of 82. The transparency in government has made the country a safe haven for the investing community.

Regulatory frameworks are optimum and facilitate growth. Staring business is very easy. The flexibility of labor regulations also helps to increase the productivity.

So overall it is the safe haven of the World Economy!!!!!!!!!!

The Economics of Christmas

There is no denying the fact that Christmas has become extremely commercialized. There are thousands of sales all over the place, there are a number of Christmas themed things nobody asked for, but are still purchased. All of this makes one think- what exactly is the economics of Christmas?

The economics of Christmas

When thinking about the economics of Christmas, one would certainly have to consider the gift economy. After all, the largest amount of sales during Christmas are gifts. Anthropologically speaking, it is not possible for the value of a gift to be taken as a strict economic measure. When a person gives a gift, they give it with particular wishes and affection, two things that cannot be measured. Now, this is the value addition most economists have a huge issue with.

Adam Smith talks about how the economy can be measured because the butcher does not sell you meat because of the goodness of his heart, he sells you meat because he wants your money. However, with Christmas that is not the deal. We get gifts that we have asked for, and gifts we wanted but were too shy to ask. And these gifts transcend the simply economic plane and become something more. It’s the only human layer left to the highly commercialized practice of Christmas, after all.

Is Growth Really the Answer?

I’ve written earlier about how the mantra that economic competition is universally good can be questioned in a world where economic developments are more and more interrelated. Another of these seeming universal truths is that economic growth is good and desirable. The main outcome of the G20 summit that just ended in Brisbane, Australia, is that the 20 countries that already have the largest economies pledged to grow even further. New Zealand is not one of these countries but has been invited as a guest.

Reading this, I was wondering whether economic growth is indeed such a great thing and whether New Zealand should really follow the big countries lead. The stipulation is that only growth can secure existing and create new jobs, that it is necessary for becoming or staying competitive (see a pattern?) but we all know that growth comes with costs. A growing economy means more strain on non-regenerative resources, danger for the environment and biodiversity, it endangers the vulnerable parts of the national as well as global society.

New Zealand and sustainable tourism

And I am getting increasingly sceptical that only a growing economy is the only way to create jobs. In New Zealand, our biggest resource is our wonderful nature. Sustainable tourism like we see here can not only create long-term jobs, both for skilled and unskilled workers, but also manage our sparse resources in a responsible way. I don’t mean to say that all growth is bad but what is often meant with it sounds more like lending from future generations with very bad interest rates.

The Chinese Economy

How long will the Chinese economy keep going upwards? Can it ever wittle away to a trickle of growth? What will come of the manufacturing sector and will they be forced to diversify in the coming decades and move production to other poorer countries in the surrounding area?

Take for example this caption from an article in The Economist “Forecasters often extrapolate from recent growth rates, the authors note. The IMF, for instance, projects that Chinese growth will slow almost imperceptibly over the next five years, from about 7.4% this year to 6.3% by the end of the decade.” So that often countries that experience significant growth often slowly drop in growth rates for their economies over time.

china's economy growth will drop in the coming decade

I think there’s definitely some truth to this. I can see China requiring some significant diversification in their market in the coming decades to remain a potent competitor in the world market. It’s only a matter of time before we find out how limited the manufacturing industry is for China and what they will have to do moving forward to remain a force. I know that other countries such as New Zealand and many Asian countries rely on the Chinese industry so they will have to adapt as well.

Cash-flow Concerns


A hot topic which never fails to divide and stir up fiery debates is the topic of benefits. Americans often view the benefit state as a socialist nightmare which makes people dependent and too lazy to work. Other countries have enjoyed success however by managing social benefits in a way which truly takes care of those members of society who are truly vulnerable and in need of financial help.

In NZ we’re still experimenting with social support and people fall on either side of the debate when it comes to discussing whether it’s helping or hindering people. A report I found recently sheds some interesting light on the issue noting that it’s common for people to return to benefits after only 6 or 12 months in a new job. The proposal is to give cash incentives to keep people in their employment longer. It makes sense, people are always in need of extra cash and having this kind of reward system should work nicely to help deter people from returning to benefits.

Another alternative I recently unearthed is the website fastcash.com where you can get short-term payday cash loans in as little as 4 minutes. We all know the dangers of using such services, but if you use it sensibly and infrequently, it can be a life-saving way to get your hands on some instant cash.