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