| When learning accounting for the first time, the | | | | - the accounting will show that a credit of the |
| terms 'debit' and 'credit' can be a bit confusing. | | | | same amount is being made elsewhere at the |
| Why? Because when you go to the bank and | | | | same time. |
| deposit money, the teller will tell you, "I am | | | | The easiest way to figure out debits and credits |
| crediting your account X amount of dollars," but if | | | | in accounting terms is to figure out the following: |
| you are taking money our of your account, the | | | | what did you receive, and where did it come |
| teller will tell you, "I am debiting your account X | | | | from. The debit is what you received, and the |
| amount of dollars." Also, with debit machines all | | | | credit is where you received it from, in accounting |
| over the place, and credit cards in everyone's | | | | terms. So for demonstration sake, let's say you |
| pocket, the two accounting terms take on a | | | | bought a CD with your credit card. The CD is |
| whole new meaning. | | | | what you got, so it will be a debit in the |
| However, what we've learned about these two | | | | accounting world, and the credit will be applied to |
| words so important in the accounting world, debit | | | | the liability you carry on your credit card for the |
| and credit, have to be unlearned quickly. Why? | | | | exact same amount. |
| Because in accounting, the term debit is used to | | | | The bank can easily confuse people learning about |
| describe a bank account and that money owed | | | | credits and debits in the accounting sense of the |
| are actually credit accounts - the exact opposite | | | | words, especially when discussing liability. For |
| of what we've been taught elsewhere. | | | | instance, when you put money in the bank, the |
| In accounting terms, neither credits nor debits are | | | | bank's liability to you increases, and since liabilities |
| 'bad', but they need to equal each other in order | | | | are credits, they are crediting your account (in |
| to balance themselves out in the end. Every | | | | accounting terms). And when the bank lowers |
| itemized transaction, no matter if it's a deposit or | | | | their liability to us (by us taking money out of the |
| a bill to be paid has both a debit and credit posted | | | | bank) the banks are debiting the liability account, |
| in the accounting world. This is what is called | | | | from an accounting perspective. |
| 'double-entry accounting' - so when you go to the | | | | Basically it comes down to being able to figure out |
| bank, and the teller says, "I am crediting your | | | | what you got and where exactly it came from; if |
| account X amount of dollars," she is also debiting | | | | you can figure these out for every transaction, |
| an entry of a similar amount without telling you | | | | then you've got the accounting terms of credit |
| this. The same goes for when the teller tells you, | | | | and debit down pat. |
| "I am debiting your account X amount of dollars," | | | | |