Glossary
Direct debit
An arrangement letting a supplier collect varying amounts from an account with permission.
What it means
An instruction allowing a named payee to withdraw amounts from a customer's bank account, which may vary between payments.
Example
A utility direct debit of RM180 shows on the statement and must be entered in the cash book.
Why it matters
Like other automatic payments it is often seen on the statement first and updates the cash book.
In practice
A direct debit is entered on the credit (payments) side of the cash book. It adds to the bank payments that lower the bank balance in the statement of financial position. As with other bank-initiated items, the bank statement often shows it before the business has recorded it. So it commonly turns up during a bank reconciliation and then needs writing up in the cash book.
A good example is a utility bill collected each month. One month the electricity supplier takes RM240, the next RM310, because usage differs. The permission given to the supplier lets it collect the correct amount each time.
It is often confused with a standing order. The difference is control over the sum. A direct debit lets the supplier vary the amount it collects. A standing order pays a fixed figure that the customer has set. Knowing which one it is explains why an outgoing payment can change in size.
If you are unsure how to treat bank items found on the statement, one of our teachers can go through a full set with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.3 Bank reconciliation (page 13).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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