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> Definition 6: Credit An entry that represents money leaving an account. > Definition 7: Debit An entry that represents money entering an account. Not really

by t_mann 3y ago

> Definition 6: Credit An entry that represents money leaving an account. > Definition 7: Debit An entry that represents money entering an account. Not really, the meaning of debit and credit depends on the type of account: https://en.wikipedia.org/wiki/Debits_and_credits https://en.wikipedia.org/wiki/Debits_and_credits Maybe there's a reason why it takes more than one course to become a CPA (https://www.accounting.com/careers/cpa/how-to-become/ https://www.accounting.com/careers/cpa/how-to-become/).

Sammi 3y ago
Second sentence of that wikipedia article is: "A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account."
rahimnathwani 3y ago
Not really, the meaning of debit and credit depends on the type of account That's how most accountants think about it. But I think there's something more fundamental: a CR entry is an increase is what the company owes (to creditors or shareholders), and a DR is an increase in what the company owns. EDIT: see this link for how this relates to the accounting equation https://news.ycombinator.com/item?id=32501707 https://news.ycombinator.com/item?id=32501707
- emptyfile 3y ago
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- jfengel 3y ago
  Isn't that exactly backwards to what most people think of credits and debits? If you credit me something, I now have something. I don't owe anything. I can kinda squint and see "Oh, you want the universe to balance, so if I have something it is some kind of karmic debt". But it still feels like exactly the opposite of what I grew up thinking of these terms to mean.
  - rahimnathwani 3y ago
    It's the opposite because when a counterparty (like a bank or a store) says they're 'crediting your account', they're talking about the impact from their perspective, not your perspective.
- t_mann 3y ago
  That's (somewhat) true for accounts that represent stocks (assets, liabilities, not really for equity though), it's not true for accounts that represent flows (income, expenses). Income is recorded as a credit entry in an income account, eg (the corresponding debit entry would typically be on something like a current account or claims on customers).
  - rahimnathwani 3y ago
    Consider the positioning of income and expense accounts within the accounting equation. Essentially, they are components of equity. View equity as the company's obligation to its shareholders. A credit entry signifies an increase in what the company owes, whether to creditors or shareholders, while a debit entry reflects an increase in the company's assets.
jfengel 3y ago
Every time I look at accounting, the different kinds of accounts baffle me. I can never keep straight what each kind of account is used for, or which ones have positive credits and which ones have negative credits. As far as I can tell, the point is to double the amount of work in the hopes of catching certain kinds of errors. Which makes sense when you have humans making the entries and humans doing the arithmetic. But I grew up in a world where computers do all of the math, and it always looks to me like it's violating the Don't Repeat Yourself principle. If you say the same thing in two different places, one of them is always going to be wrong. I feel as if, had accounting been designed in the modern era, we wouldn't have done it that way. I'm not an accountant and my failure to understand does not make the thing wrong. But my bafflement at "credits decrease an asset account" feels emblematic of something being genuinely off base.
- kqr 3y ago
  The point is not to double the amount of work to reduce errors. The point is to record both where money came from and where it went to. This simplifies analysis, reporting, etc. down the line. The fundamental unit of a double-entry system is the transaction, which records from where things came and to where they went. In software parlance, it's an event-sourced system rather than the stateful/interactive system of single-entry accounting.
- velcrovan 3y ago
  > But I grew up in a world where computers do all of the math, and it always looks to me like it's violating the Don't Repeat Yourself principle. If you say the same thing in two different places, one of them is always going to be wrong. This is wrong on a couple of levels. In your understanding do RAID disk arrays and backups violate “the Don’t Repeat Yourself principle”? Is one of the copies of the data guaranteed to be wrong? Do data backups duplicate data because of pre-modern thinking? But on another level it’s irrelevant, because in double-entry bookkeeping, there is no duplication of information. If you buy an apple for a dollar, your journal entry will mark a dollar out of cash — which is true because you now have 1 less dollar — and a dollar against your “Food” expense account — which is true because the thing you just spent a dollar on was food. If you took away either entry, you would be losing information. The fact that both entries have to balance isn’t because of duplication, it’s because the same dollar can't exist in more than one place at a time, which is axiomatically true regardless of whether you use a computer.

by t_mann 3y ago

Sammi 3y ago

Second sentence of that wikipedia article is: "A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account."

rahimnathwani 3y ago

Not really, the meaning of debit and credit depends on the type of account That's how most accountants think about it. But I think there's something more fundamental: a CR entry is an increase is what the company owes (to creditors or shareholders), and a DR is an increase in what the company owns. EDIT: see this link for how this relates to the accounting equation https://news.ycombinator.com/item?id=32501707 https://news.ycombinator.com/item?id=32501707

emptyfile 3y ago
[dead]
jfengel 3y ago
Isn't that exactly backwards to what most people think of credits and debits? If you credit me something, I now have something. I don't owe anything. I can kinda squint and see "Oh, you want the universe to balance, so if I have something it is some kind of karmic debt". But it still feels like exactly the opposite of what I grew up thinking of these terms to mean.
- rahimnathwani 3y ago
  It's the opposite because when a counterparty (like a bank or a store) says they're 'crediting your account', they're talking about the impact from their perspective, not your perspective.
t_mann 3y ago
That's (somewhat) true for accounts that represent stocks (assets, liabilities, not really for equity though), it's not true for accounts that represent flows (income, expenses). Income is recorded as a credit entry in an income account, eg (the corresponding debit entry would typically be on something like a current account or claims on customers).
- rahimnathwani 3y ago
  Consider the positioning of income and expense accounts within the accounting equation. Essentially, they are components of equity. View equity as the company's obligation to its shareholders. A credit entry signifies an increase in what the company owes, whether to creditors or shareholders, while a debit entry reflects an increase in the company's assets.

jfengel 3y ago

Every time I look at accounting, the different kinds of accounts baffle me. I can never keep straight what each kind of account is used for, or which ones have positive credits and which ones have negative credits. As far as I can tell, the point is to double the amount of work in the hopes of catching certain kinds of errors. Which makes sense when you have humans making the entries and humans doing the arithmetic. But I grew up in a world where computers do all of the math, and it always looks to me like it's violating the Don't Repeat Yourself principle. If you say the same thing in two different places, one of them is always going to be wrong. I feel as if, had accounting been designed in the modern era, we wouldn't have done it that way. I'm not an accountant and my failure to understand does not make the thing wrong. But my bafflement at "credits decrease an asset account" feels emblematic of something being genuinely off base.

kqr 3y ago
The point is not to double the amount of work to reduce errors. The point is to record both where money came from and where it went to. This simplifies analysis, reporting, etc. down the line. The fundamental unit of a double-entry system is the transaction, which records from where things came and to where they went. In software parlance, it's an event-sourced system rather than the stateful/interactive system of single-entry accounting.
velcrovan 3y ago
> But I grew up in a world where computers do all of the math, and it always looks to me like it's violating the Don't Repeat Yourself principle. If you say the same thing in two different places, one of them is always going to be wrong. This is wrong on a couple of levels. In your understanding do RAID disk arrays and backups violate “the Don’t Repeat Yourself principle”? Is one of the copies of the data guaranteed to be wrong? Do data backups duplicate data because of pre-modern thinking? But on another level it’s irrelevant, because in double-entry bookkeeping, there is no duplication of information. If you buy an apple for a dollar, your journal entry will mark a dollar out of cash — which is true because you now have 1 less dollar — and a dollar against your “Food” expense account — which is true because the thing you just spent a dollar on was food. If you took away either entry, you would be losing information. The fact that both entries have to balance isn’t because of duplication, it’s because the same dollar can't exist in more than one place at a time, which is axiomatically true regardless of whether you use a computer.