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The operation performed by debit/credit depends on the classification of the accounts. Accounts are listed traditionally with Assets on the left, and Liabilitie

by neffy 6y ago

The operation performed by debit/credit depends on the classification of the accounts. Accounts are listed traditionally with Assets on the left, and Liabilities and Equity on the right. A debit to a Liability account is a minus, and a credit is a plus, but it's the other way around on the asset side, where a debit is a plus, and a credit is a minus. (This kind of thing happens when English mugs other languages - Italian in this case - for its vocabulary). The easy way to remember this is just to think that the right hand side is what you think it should be, and the left hand side isn't. Double entry book keeping is under appreciated - it's one of the earliest examples of error correction and detection coding kicking around.

wrycoder 6y ago
I’ve found the best way is to remember the phrase, “Debits come in and credits go out.” Let’s say you have a bank account. Your view of that account is opposite from the bank’s view. You have $100 cash. That’s an asset from your POV, and it carries a debit balance on your books - when you received it, the cash “came in”. You walk into the bank and deposit it. The cash goes out of your books, but an asset (the increase in your bank account) comes onto your books. You credit cash and debit asset. From the bank’s POV, cash came in - they debit their cash account. And they credit your account in their books. That account is a liability from their POV - they owe you the money. Notice how the debit and credit to cash even balanced across entities. If you talk about pluses and minuses, you’ll get confused quickly. One of the worst things that ever happened was banks issuing “debit cards”. When you take cash from an ATM, it’s a debit from the bank’s POV. The bank carries your account as a liability, which carries a credit balance. (You are the bank’s creditor!) So the bank debits your account (credit came in again) and credits their cash (cash went out). You credit the bank account on your books (asset went out) and debit your cash (cash came in) Just remember that a “debit card” reflects the banks POV and don’t let that confuse you about the meaning of “debit”. Debiting an asset is generally a good thing! When making accounting transactions, debits always balance credits - meaning they total to zero in the code itself. It’s conventional to make assets positive (hey, having lots of assets is good, right?). OP gains nothing but confusion by turning everything upside down.
- lisper 6y ago
  > Debits come in and credits go out. That is the complete opposite of common usage. When I get a credit on my credit card statement, it means money is coming in to me. When I get a debit on my debit card, it means money is going out from me. It's not rocket science, or at least it shouldn't be. And yet somehow accountants have managed to turn it into something even more confusing.
  - paublyrne 6y ago
    Isn't this just a matter of perspective. You are being debited by the third party, meaning they are requesting money. The bank credits your account with money when they put something in your account.
  - SifJar 6y ago
    > Just remember that a “debit card” reflects the banks POV
  - kgwgk 6y ago
    Common usage has turned the terms into something confusing. It's not the accountants fault. Your credit card is linked to an account in someone else's books. They opened that credit account for you.
    - wrycoder 6y ago
      If you want to track the bank account on your own books, what they call a debit, you call a credit. Ït’s a mirror image. Debits come in to an entity, credits go out.
  - dragonwriter 6y ago
    > > Debits come in and credits go out. > That is the complete opposite of common usage. Nah, it's exactly the usage you are used to from statements you get. > When I get a credit on my credit card statement, it means money is coming in to me. When you get a credit card statement, it's a statement of the portion of your account in the card issuer’s books. If you were keeping books for the card, they would be mirror images of the bank’s books.
hluska 6y ago
I prefer to think of double entry accounting (with reasonable controls) as the first reasonable implementation of a blockchain. At its core, a double entry accounting system is a giant ledger where each transaction is linked to the last one ‘forever’ (assuming proper controls). It’s likely the only reasonable implementation of a blockchain but we won’t know that for sure until cryptocurrency matures enough to develop reasonable controls. I’m not holding my breathe because then it’s just an accounting system with reasonable controls built in and there are already more than enough of those built with databases.
verytrivial 6y ago
> The operation performed by debit/credit depends on the classification of the accounts. OP has chosen a consistency in the operation of debit+credit sign and applied a 'display adjustment' to implement the classification. This actually sounds like a lower entropy way to remember it -- no left hand/right hand stuff, just 'There two account types are sign reversed on display'. But it will confuse anyone who isn't indoctrinated to the convention, but one could argue that it is these various conventions that make double entry seem arcane in the first place!

by neffy 6y ago

wrycoder 6y ago

I’ve found the best way is to remember the phrase, “Debits come in and credits go out.” Let’s say you have a bank account. Your view of that account is opposite from the bank’s view. You have $100 cash. That’s an asset from your POV, and it carries a debit balance on your books - when you received it, the cash “came in”. You walk into the bank and deposit it. The cash goes out of your books, but an asset (the increase in your bank account) comes onto your books. You credit cash and debit asset. From the bank’s POV, cash came in - they debit their cash account. And they credit your account in their books. That account is a liability from their POV - they owe you the money. Notice how the debit and credit to cash even balanced across entities. If you talk about pluses and minuses, you’ll get confused quickly. One of the worst things that ever happened was banks issuing “debit cards”. When you take cash from an ATM, it’s a debit from the bank’s POV. The bank carries your account as a liability, which carries a credit balance. (You are the bank’s creditor!) So the bank debits your account (credit came in again) and credits their cash (cash went out). You credit the bank account on your books (asset went out) and debit your cash (cash came in) Just remember that a “debit card” reflects the banks POV and don’t let that confuse you about the meaning of “debit”. Debiting an asset is generally a good thing! When making accounting transactions, debits always balance credits - meaning they total to zero in the code itself. It’s conventional to make assets positive (hey, having lots of assets is good, right?). OP gains nothing but confusion by turning everything upside down.

lisper 6y ago
> Debits come in and credits go out. That is the complete opposite of common usage. When I get a credit on my credit card statement, it means money is coming in to me. When I get a debit on my debit card, it means money is going out from me. It's not rocket science, or at least it shouldn't be. And yet somehow accountants have managed to turn it into something even more confusing.
- paublyrne 6y ago
  Isn't this just a matter of perspective. You are being debited by the third party, meaning they are requesting money. The bank credits your account with money when they put something in your account.
- SifJar 6y ago
  > Just remember that a “debit card” reflects the banks POV
- kgwgk 6y ago
  Common usage has turned the terms into something confusing. It's not the accountants fault. Your credit card is linked to an account in someone else's books. They opened that credit account for you.
  - wrycoder 6y ago
    If you want to track the bank account on your own books, what they call a debit, you call a credit. Ït’s a mirror image. Debits come in to an entity, credits go out.
- dragonwriter 6y ago
  > > Debits come in and credits go out. > That is the complete opposite of common usage. Nah, it's exactly the usage you are used to from statements you get. > When I get a credit on my credit card statement, it means money is coming in to me. When you get a credit card statement, it's a statement of the portion of your account in the card issuer’s books. If you were keeping books for the card, they would be mirror images of the bank’s books.

hluska 6y ago

I prefer to think of double entry accounting (with reasonable controls) as the first reasonable implementation of a blockchain. At its core, a double entry accounting system is a giant ledger where each transaction is linked to the last one ‘forever’ (assuming proper controls). It’s likely the only reasonable implementation of a blockchain but we won’t know that for sure until cryptocurrency matures enough to develop reasonable controls. I’m not holding my breathe because then it’s just an accounting system with reasonable controls built in and there are already more than enough of those built with databases.

verytrivial 6y ago

> The operation performed by debit/credit depends on the classification of the accounts. OP has chosen a consistency in the operation of debit+credit sign and applied a 'display adjustment' to implement the classification. This actually sounds like a lower entropy way to remember it -- no left hand/right hand stuff, just 'There two account types are sign reversed on display'. But it will confuse anyone who isn't indoctrinated to the convention, but one could argue that it is these various conventions that make double entry seem arcane in the first place!