Comment by tantalor
2 years ago
> 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.
> accounting a solved problem but apparently not.
well, it is if you do it on books, not in natural language.
since it looks deceptively simple everyone throws around sentences that are screaming for mandatory context.
the whole GAAP (generally accepted accounting principles) (and certs like CFA too) are about codifying this context.
what goes where is the name of the game. can you consider this or that an asset or not? is that an expense or you got credit from your vendor, because they shipped it before you paid it? which quarter does it belong to if they shipped it before new year's eve but we only pay it next financial year? etc... etc...
that said accounting is not a mechanical system. there are quite a lot of degrees of freedom ... but there are of course clearly wrong ways to do it ( https://en.wikipedia.org/wiki/Creative_accounting )
oh, and when someone says debit/credit just use a spray bottle on them and ask them to simply state clearly what happens with the fucking number on which of your accounts, does it increase or decrease. (ie. they should just say that the money goes from this account to that account, and suddenly there's no ambiguity.)
From the perspective of the person withdrawing their own money from a bank account, that account is an asset, same as the money in their pocket.
In accounting/bookkeeping parlance, "asset" and "debit" have a very strict meaning, but it's our job to make sure we are using them correctly and we agree that the usage is correct.
> Debits increase the value of asset
https://www.netsuite.com/portal/resource/articles/accounting...
> Asset accounts: Debit Increase, Credit Decrease
https://www.chase.com/business/knowledge-center/manage/debit...