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