| The frist time I have learnt accouting, the terms | | | | goes for when the teller tells you, “I am |
| ‘debit’ and ‘credit’ | | | | debiting your account X amount of |
| can be a bit confusing. Debit is an amount entered | | | | dollars,” – the accounting will show |
| on the left-hand side of an account. Asset and | | | | that a credit of the same amount is being made |
| expense accounts are increaed by debiting, that | | | | elsewhere at the same time. |
| is, by entering amounts in the left-hand column. | | | | The easiest way to figure out debits and credits |
| Credit is an amount entered on the right-hand side | | | | in accounting terms is to figure out the following: |
| of an account. Liability, captial, and income | | | | what did you receive, and where did it come |
| accounts are increased by crediting, that is, by | | | | from. The debit is what you received, and the |
| entering amounts in the right-hand column. | | | | credit is where you received it from, in accounting |
| However, what we’ve learned about | | | | terms. So for demonstration sake, let’s |
| these two words so important in the accounting | | | | say you bought a CD with your credit card. The |
| world, debit and credit, have to be unlearned | | | | CD is what you got, so it will be a debit in the |
| quickly. Why? Because in accounting, the term | | | | accounting world, and the credit will be applied to |
| debit is used to describe a bank account and that | | | | the liability you carry on your credit card for the |
| money owed are actually credit accounts – | | | | exact same amount. |
| the exact opposite of what we’ve been | | | | The bank can easily confuse people learning about |
| taught elsewhere. | | | | credits and debits in the accounting sense of the |
| In accounting terms, neither credits nor debits are | | | | words, especially when discussing liability. For |
| ‘bad’, but they need to equal each | | | | instance, when you put money in the bank, the |
| other in order to balance themselves out in the | | | | bank’s liability to you increases, and since |
| end. Every itemized transaction, no matter if | | | | liabilities are credits, they are crediting your |
| it’s a deposit or a bill to be paid has both | | | | account (in accounting terms). And when the bank |
| a debit and credit posted in the accounting world. | | | | lowers their liability to us (by us taking money out |
| This is what is called ‘double-entry | | | | of the bank) the banks are debiting the liability |
| accounting’ – so when you go to | | | | account, from an accounting perspective. |
| the bank, and the teller says, “I am | | | | If you can figure these out for every transaction, |
| crediting your account X amount of | | | | then you’ve got the accounting terms of |
| dollars,” she is also debiting an entry of a | | | | credit and debit down pat. |
| similar amount without telling you this. The same | | | | |