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