Comment by mijoharas
2 years ago
> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing
What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spending 5$ on lemonade sure as hell isn't putting 5$ in their accounts sales entry).
I'm not fully understanding the confusion both here and in the article.
When I talk to accountants, I get confused with debit/credit so I use "increase" and "decrease". Everyone seems to understand me fine. For example, "Decrease cash", to buy equipment "increases assets". "Increase cash" by borrowing money is "increasing liability".
Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. After using the terms for a little while they switch the symbol (word) they think of, but it still retains the same meaning. They are basically synonymous.
source: friends and family members who are accountants and have generously given free bookkeeping tutorials
>Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well.
So how would you correctly express the parent's example in terms of debit/credit if debit/credit are synonymous with decrease/increase?:
>>"Increase cash" by borrowing money is "increasing liability".
"Crediting cash by borrowing money is crediting liability" would sound obviously incorrect to any accountant.
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> What would you suggest as an improvement?
Use the intuitive meaning of the words: a credit means you have money coming in, a debit means you have money going out. An increase in assets, income, or equity is a credit, and an increase in expenses or liabilities is a debit, and vice versa.
Or, alternatively, just use "credit" for any increase, and "debit" for any decrease. But this:
"Definition 6: Credit - An entry that represents money leaving an account."
is just totally backwards.
>Use the intuitive meaning of the words: a credit means you have money coming in, a debit means you have money going out. An increase in assets, income, or equity is a credit, and an increase in expenses or liabilities is a debit, and vice versa.
An increase in assets is a debit.
>Or, alternatively, just use "credit" for any increase, and "debit" for any decrease.
How is this consistent with the fact that an increase in my bank account balance is a debit?
You have completely missed the point, which is that the way in which accountants use these words is unnecessarily confusing because it does not align with the common English definitions of the words "credit" and "debit".
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It doesn't matter about the person buying lemonade. Their accounts are theirs alone and don't affect your accounts.
I solve this by remembering "debit = destination" (d=d) in all cases.
Examples:
If you deposit money into a checking account (asset) that is a debit (account increases) because the money "goes to" in that account (destination).
If you borrow money from a credit card (liability) that is a credit (account increases) because the money "comes from" that account (not destination).
The hard part is remembering debit accounts increase with debits, and credit accounts increase with credits.
Because people don't understand that credit and debit only make sense in the context of the account being applied to. If you deposit money to your bank account, it's a credit in your <name of back account>. If you withdraw money from the ATM, you debit your bank account and credit your cash account. But globally you haven't gotten more money.
> If you withdraw money from the ATM, you debit your bank account and credit your cash account
You have that exactly backwards!
Assets (like bank accounts and cash) are "debit accounts" meaning they increase with debits and decrease with credits.
When you withdraw money from your bank account, the bank account goes down, so we know that must be a credit to the bank account, while the cash goes up, that is a debit to the cash account.
Your confusion might be due to perspective. From the bank's view your bank account is a liability (credit account) so it increases with credits and decreases with debits.
Do they have it backwards? It sounds like a valid perspective to me. I take money from an ATM: the number in my current account decreases, the cash I have on hand increases. Nothing wrong there.
Sure the banks perspective is different but maybe I'm not interested in that.
I love that this thread is full of people confidentally saying something that sounds correct or at least reasonable and the first reply that comes back is no you've got that wrong and then what your saying also sound's reasonable but it just seems to depend on the context and perspective.
I would have thought accounting a solved problem but apparently not.
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