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Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money. The effect of a debi

Sometimes non-accounting people get hung-up on the words "debit" and "credit" and think they have to do with "owing" or "being owed" money. The effect of a debit or credit on the business depends on the accounts in the transaction and debit and credit don't have anything to do with the "direction" of a flow of money. My 100-level accounting instructor summarized it as: "A debit is the entry in the left column, and a credit is an entry in the right column." Without the context of the specific accounts being debited or credited the terms themselves mean nothing. Aside: A 100-level knowledge of accounting can confer near "super powers" when it comes to dealing with finance and accounting people. Double-entry bookkeeping is one of the oldest and longest-practiced "IT" disciplines. Your work probably touches revenue / expenses for your employer and someday you'll need to interface with accounting or finance people. Being able to speak the language, even poorly, has helped me gain trust and credibility that I don't believe speaking only in IT terms would have.

kinleyd 4y ago
Sadly, I gave up accounting in high school after failing to reason through the meaning of 'credit' and 'debit' (Yes, I went in too deep!). My epiphany came in B-school when I tackled it again, when I finally figured out what your instructor summarized.
CSMastermind 4y ago
I was lucky enough to work on a billing system early in my career and pick up some rudimentary knowledge of accounting. I can confirm that even being able to 'speak the language' a little bit provides immense value to you as a developer.
- Mezzie 4y ago
  Also can confirm as an accountant's kid. It's kind of like being given a cheat code.
rahimnathwani 4y ago
> "debit" and "credit" and > think they have to do with > "owing" or "being owed" money. I think of it as 'owing' (liability) or 'owning' (asset). When you credit an account, you either increase what you 'owe' on that account OR decrease what you 'own' on that account. Examples: - bank credits a customer account => bank owes more to its customers - company credits income account => company owes more to its shareholders - company credits accounts receivable => company owns less in unpaid invoices > Without the context of the > specific accounts being debited > or credited the terms > themselves mean nothing. This seems incorrect to me. > A debit is the entry in the left > column, and a credit is an > entry in the right column. Debits/credits concepts can exist (and we can operate on them) without the existence of left/right columns.
- Max-q 4y ago
  > This seems incorrect to me. That’s because the system is not built by programmers. Some accounts (that’s accounting accounts, not bank accounts) are positive for you and some are negative. You need to know what kind of account it is to know if debit is good or bad for you.
  - rahimnathwani 4y ago
    "That’s because the system is not built by programmers." That's definitely not the reason I consider GP's comment incorrect. (I'm a qualified accountant.)
- tepitoperrito 4y ago
  I think (would love to know if I'm wrong) of it as: debit => from, credit => to
  - lhuser123 4y ago
    It depends. You really need the context.
  - rahimnathwani 4y ago
    I don't understand what you mean well enough. So you might be right or you might be wrong :) Can you share a couple of example (or maybe use the same examples I did)?
marcosdumay 4y ago
Yep, you debit or credit an specific account, and to make things extra confusing, a debit on one account is always the same as a credit on a different account (and the other way around). Somehow transaction intermediaries made some incredible bullshity product differentiation out of those words... and what makes everything worse is that, since they are intermediaries, every transaction is both a debit and a credit on their own accounting.
datavirtue 4y ago
You just look silly trying to build financial software without understanding and implementing double-entry or ledgers. You have to know when to employ debit and credit nomenclature and be able to easily explain the reactions in the system...or you look silly. Sort of like when accountants start talking about databases and APIs without proper training. I have had to train developers on the simple concept of a ledger, which totally baffled them. It is event sourcing. You write, never update. If you want to offset a previous transaction you just record a new one. Want to know the account balance, just add up every amount within the range of entries you care about. Once they grasped that they were wanting to use the terms debit and credit in that context. Not cool. If you are tracking single accounts you only need negative and positive amounts. If the account/ledger is not offsetting another debit/credit there is no need to introduce that concept and complicate things. If you do, the finance team is going to wonder what other accounts you are offsetting. If the answer is none, brows wrinkle and confusion sets in. And ffs don't ever send them a spreadsheet or report with currency symbols in it. Major peave. Accountants have been using event sourcing (immutable ledgers) for hundreds of years. Powerful. Every complex finance problem I have run into in software dev was easily and elegantly solved with immutable records.
- astrange 4y ago
  Why don’t they like currency symbols?
tantalor 4y ago
> debit is the entry in the left column, and a credit is an entry in the right column Problem with this is it's a convention. Accountants in Australia could do it the other way (credit on left) and it works just as well.
kojim 4y ago
Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk about crediting one account and debiting another. But it’s the 21st century and we have negative numbers now - why not just use positive and negative numbers? Using positive and negative numbers gets ambiguous. If your app lets Alice sends Bob $5, we remove $5 from Alice’s account and add $5 to Bob’s account. So it seems fair to say that if both user accounts started at $0, Alice’s balance is -$5, and Bob’s balance is $5. Let's represent it that way in your DB. Your CFO would disagree. From your company’s perspective, what these balances mean is that Alice owes you $5, and the company owes Bob $5. In other words, if the company went out of business tomorrow, you'd have to go out to collect $5 from Alice so that you could give Bob the $5 he rightfully thinks he’s holding inside of your app. Wouldn’t it be more logical to show Alice’s balance as $5 and Bob’s balance as -$5? It gets even more confusing if your software deals with financial instruments like loans, investments, or invoices. Dealing with every balance in your application as a simple positive or negative number gets really confusing, and will cause both ledgering issues and communication breakdowns between your eng and financial teams.
- whatshisface 4y ago
  That's like choosing whether +x is a rightward or leftward facing coordinate axis. You can still use negative numbers, but you have to indicate whether positive means left or right. See also: positive and negative longitudes vs. east or west longitudes.
  - kojim 4y ago
    Oh completely. The "agreeing on what's left or right" in every context is the tough part, and already a solved problem with debits and credits.
- lelanthran 4y ago
  > Accounting was invented before negative numbers. Counting was invented before negative numbers, but "double-entry accounting", which is what people refer to when they say debit and credit, was only invented in the 18th century, IIRC.
bgro 4y ago
It gets really confusing when you talk about "in the red" or the black / red coloring and it depends on which side of the books you're on for what it means. I get this mixed up with electrical engineering every time now. I never feel comfortable jumping a car. "Red means positive, as in I'm positively sure you owe me a lot of money."
0xdeadbeefbabe 4y ago
What is super powerful about thinking of income as a credit account?
deleted 4y ago
[deleted]
jwarden 4y ago
It's correct that "debit" and "credit" don't have to do with "owing/being owed" money. But they do have to do with "OWNing/being owed". This apparently subtle difference provides powerful insight. If you look at equity as money owed to shareholders, then the left side of the balance sheet is money owned, and the right side of the balance sheet is money owed. Money OWNEd = Money OWEd Assets = Liabilities + Equity A debit either increases money OWNed on the left side of the balance sheet, or decreases money OWEd on the right side.
2143 4y ago
> Sometimes non-accounting people get hung-up on the words "debit" and "credit" In took an undergrad accounting class centuries ago. I'm a CS major, but we were required to take a beginner class in accounting, which in retrospect was a good thing. In the accounting class (the double-entry bookkeeping part), for any transaction two accounts were involved: - Money was "debited" into one account. ie., money came into that amount (balance increased) - That same money was "credited" from another account. ie., money left that account (balance decreased). However, my bank seems to use the terminology in the opposite way. If $10 comes into my bank account, I get a message saying "$10 was credited into your account". Likewise, if I send money elsewhere the message would be "$10 was debited from my account". I'm told that if you look at it in some convoluted way the meaning of "debit" and "credit" is infact the same, even though at first glance is seems to be the opposite. Now that I think about it, there was something to do with "asset", "liability" etc, on which the meaning of the terms depended on.
- EvanAnderson 4y ago
  On the bank's books your account is a liability (money the bank owes you). Simplistically, when you deposit money the bank's cash balance is debited and your account is credited.
- jlokier 4y ago
  > If $10 comes into my bank account, I get a message saying "$10 was credited into your account". That's because you are a creditor to the bank. After you put cash into your bank account, the bank owes you cash. You are lending them your cash, and the more you lend them, the more of a creditor you are. That's why they say your account is in credit. When you take too much cash out of the bank, it's obvious you are a debtor to the bank. You owe them. You're in debt to them. That's why taking cash out is called debiting. The more you take out, the closer to a debtor you become, though hopefully on balance you've been more of a creditor than a debtor.

kinleyd 4y ago

Sadly, I gave up accounting in high school after failing to reason through the meaning of 'credit' and 'debit' (Yes, I went in too deep!). My epiphany came in B-school when I tackled it again, when I finally figured out what your instructor summarized.

CSMastermind 4y ago

I was lucky enough to work on a billing system early in my career and pick up some rudimentary knowledge of accounting. I can confirm that even being able to 'speak the language' a little bit provides immense value to you as a developer.

Mezzie 4y ago
Also can confirm as an accountant's kid. It's kind of like being given a cheat code.

rahimnathwani 4y ago

> "debit" and "credit" and > think they have to do with > "owing" or "being owed" money. I think of it as 'owing' (liability) or 'owning' (asset). When you credit an account, you either increase what you 'owe' on that account OR decrease what you 'own' on that account. Examples: - bank credits a customer account => bank owes more to its customers - company credits income account => company owes more to its shareholders - company credits accounts receivable => company owns less in unpaid invoices > Without the context of the > specific accounts being debited > or credited the terms > themselves mean nothing. This seems incorrect to me. > A debit is the entry in the left > column, and a credit is an > entry in the right column. Debits/credits concepts can exist (and we can operate on them) without the existence of left/right columns.

Max-q 4y ago
> This seems incorrect to me. That’s because the system is not built by programmers. Some accounts (that’s accounting accounts, not bank accounts) are positive for you and some are negative. You need to know what kind of account it is to know if debit is good or bad for you.
- rahimnathwani 4y ago
  "That’s because the system is not built by programmers." That's definitely not the reason I consider GP's comment incorrect. (I'm a qualified accountant.)
tepitoperrito 4y ago
I think (would love to know if I'm wrong) of it as: debit => from, credit => to
- lhuser123 4y ago
  It depends. You really need the context.
- rahimnathwani 4y ago
  I don't understand what you mean well enough. So you might be right or you might be wrong :) Can you share a couple of example (or maybe use the same examples I did)?

marcosdumay 4y ago

Yep, you debit or credit an specific account, and to make things extra confusing, a debit on one account is always the same as a credit on a different account (and the other way around). Somehow transaction intermediaries made some incredible bullshity product differentiation out of those words... and what makes everything worse is that, since they are intermediaries, every transaction is both a debit and a credit on their own accounting.

datavirtue 4y ago

You just look silly trying to build financial software without understanding and implementing double-entry or ledgers. You have to know when to employ debit and credit nomenclature and be able to easily explain the reactions in the system...or you look silly. Sort of like when accountants start talking about databases and APIs without proper training. I have had to train developers on the simple concept of a ledger, which totally baffled them. It is event sourcing. You write, never update. If you want to offset a previous transaction you just record a new one. Want to know the account balance, just add up every amount within the range of entries you care about. Once they grasped that they were wanting to use the terms debit and credit in that context. Not cool. If you are tracking single accounts you only need negative and positive amounts. If the account/ledger is not offsetting another debit/credit there is no need to introduce that concept and complicate things. If you do, the finance team is going to wonder what other accounts you are offsetting. If the answer is none, brows wrinkle and confusion sets in. And ffs don't ever send them a spreadsheet or report with currency symbols in it. Major peave. Accountants have been using event sourcing (immutable ledgers) for hundreds of years. Powerful. Every complex finance problem I have run into in software dev was easily and elegantly solved with immutable records.

astrange 4y ago
Why don’t they like currency symbols?

tantalor 4y ago

> debit is the entry in the left column, and a credit is an entry in the right column Problem with this is it's a convention. Accountants in Australia could do it the other way (credit on left) and it works just as well.

kojim 4y ago

Debits and credits is the only way to give your team a common, consistent "language" for dealing with money, and being able to speak this language as a dev gives you superpowers. Accounting was invented before negative numbers. Because of this, instead of counting money as positive or negative amounts, it uses the debits and credits. Instead of subtracting funds from one account and adding them to another, we talk about crediting one account and debiting another. But it’s the 21st century and we have negative numbers now - why not just use positive and negative numbers? Using positive and negative numbers gets ambiguous. If your app lets Alice sends Bob $5, we remove $5 from Alice’s account and add $5 to Bob’s account. So it seems fair to say that if both user accounts started at $0, Alice’s balance is -$5, and Bob’s balance is $5. Let's represent it that way in your DB. Your CFO would disagree. From your company’s perspective, what these balances mean is that Alice owes you $5, and the company owes Bob $5. In other words, if the company went out of business tomorrow, you'd have to go out to collect $5 from Alice so that you could give Bob the $5 he rightfully thinks he’s holding inside of your app. Wouldn’t it be more logical to show Alice’s balance as $5 and Bob’s balance as -$5? It gets even more confusing if your software deals with financial instruments like loans, investments, or invoices. Dealing with every balance in your application as a simple positive or negative number gets really confusing, and will cause both ledgering issues and communication breakdowns between your eng and financial teams.

whatshisface 4y ago
That's like choosing whether +x is a rightward or leftward facing coordinate axis. You can still use negative numbers, but you have to indicate whether positive means left or right. See also: positive and negative longitudes vs. east or west longitudes.
- kojim 4y ago
  Oh completely. The "agreeing on what's left or right" in every context is the tough part, and already a solved problem with debits and credits.
lelanthran 4y ago
> Accounting was invented before negative numbers. Counting was invented before negative numbers, but "double-entry accounting", which is what people refer to when they say debit and credit, was only invented in the 18th century, IIRC.

bgro 4y ago

It gets really confusing when you talk about "in the red" or the black / red coloring and it depends on which side of the books you're on for what it means. I get this mixed up with electrical engineering every time now. I never feel comfortable jumping a car. "Red means positive, as in I'm positively sure you owe me a lot of money."

0xdeadbeefbabe 4y ago

What is super powerful about thinking of income as a credit account?

deleted 4y ago

[deleted]

jwarden 4y ago

It's correct that "debit" and "credit" don't have to do with "owing/being owed" money. But they do have to do with "OWNing/being owed". This apparently subtle difference provides powerful insight. If you look at equity as money owed to shareholders, then the left side of the balance sheet is money owned, and the right side of the balance sheet is money owed. Money OWNEd = Money OWEd Assets = Liabilities + Equity A debit either increases money OWNed on the left side of the balance sheet, or decreases money OWEd on the right side.

2143 4y ago

> Sometimes non-accounting people get hung-up on the words "debit" and "credit" In took an undergrad accounting class centuries ago. I'm a CS major, but we were required to take a beginner class in accounting, which in retrospect was a good thing. In the accounting class (the double-entry bookkeeping part), for any transaction two accounts were involved: - Money was "debited" into one account. ie., money came into that amount (balance increased) - That same money was "credited" from another account. ie., money left that account (balance decreased). However, my bank seems to use the terminology in the opposite way. If $10 comes into my bank account, I get a message saying "$10 was credited into your account". Likewise, if I send money elsewhere the message would be "$10 was debited from my account". I'm told that if you look at it in some convoluted way the meaning of "debit" and "credit" is infact the same, even though at first glance is seems to be the opposite. Now that I think about it, there was something to do with "asset", "liability" etc, on which the meaning of the terms depended on.

EvanAnderson 4y ago
On the bank's books your account is a liability (money the bank owes you). Simplistically, when you deposit money the bank's cash balance is debited and your account is credited.
jlokier 4y ago
> If $10 comes into my bank account, I get a message saying "$10 was credited into your account". That's because you are a creditor to the bank. After you put cash into your bank account, the bank owes you cash. You are lending them your cash, and the more you lend them, the more of a creditor you are. That's why they say your account is in credit. When you take too much cash out of the bank, it's obvious you are a debtor to the bank. You owe them. You're in debt to them. That's why taking cash out is called debiting. The more you take out, the closer to a debtor you become, though hopefully on balance you've been more of a creditor than a debtor.