[mijoharas]

> The "credit" and "debit" terminology is ridiculous because their definitions swap around depending on which account you're talking about, which is an utterly absurd (mis)use of language and the main reason people find this confusing

What would you suggest as an improvement? The article suggests "incoming" and "outgoing" which seems to have the same issue, as does everything I see in your comment (the person spending 5$ on lemonade sure as hell isn't putting 5$ in their accounts sales entry).

I'm not fully understanding the confusion both here and in the article.

[DwnVoteHoneyPot]

When I talk to accountants, I get confused with debit/credit so I use "increase" and "decrease". Everyone seems to understand me fine. For example, "Decrease cash", to buy equipment "increases assets". "Increase cash" by borrowing money is "increasing liability".

[freedomben]

Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well. After using the terms for a little while they switch the symbol (word) they think of, but it still retains the same meaning. They are basically synonymous.

source: friends and family members who are accountants and have generously given free bookkeeping tutorials

[fauigerzigerk]

>Indeed, the dirty secret is that many accountants think of debit and credit as decrease and increase as well.

So how would you correctly express the parent's example in terms of debit/credit if debit/credit are synonymous with decrease/increase?:

>>"Increase cash" by borrowing money is "increasing liability".

"Crediting cash by borrowing money is crediting liability" would sound obviously incorrect to any accountant.

[freedomben]

Passing on the answer I got:

> I wouldn't say "they are basically synonymous" because there are situations where they flip depending on the rules/approach that you are following. After working with it you get pretty familiar with these situations and don't really even translate anymore. It's important to remember though that there are books the way most people see them, and the way an accountant following GAAP sees them. "Increase" and "decrease" are quite helpful for most people the way most people see the books. If you are applying GAAP it's like working in a different language where words don't cleanly translate.

Given that we are mostly talking about double-entry in this thread, I think he is basically telling me I'm wrong but trying to explain how I came by it honestly so I don't feel stupid :-D

To quote the famous Bender from Futurama: "I’m so embarrassed. I wish everybody else was dead."

[lisper]

> What would you suggest as an improvement?

Use the intuitive meaning of the words: a credit means you have money coming in, a debit means you have money going out. An increase in assets, income, or equity is a credit, and an increase in expenses or liabilities is a debit, and vice versa.

Or, alternatively, just use "credit" for any increase, and "debit" for any decrease. But this:

"Definition 6: Credit - An entry that represents money leaving an account."

is just totally backwards.

[fauigerzigerk]

>Use the intuitive meaning of the words: a credit means you have money coming in, a debit means you have money going out. An increase in assets, income, or equity is a credit, and an increase in expenses or liabilities is a debit, and vice versa.

An increase in assets is a debit.

>Or, alternatively, just use "credit" for any increase, and "debit" for any decrease.

How is this consistent with the fact that an increase in my bank account balance is a debit?

[lisper]

You have completely missed the point, which is that the way in which accountants use these words is unnecessarily confusing because it does not align with the common English definitions of the words "credit" and "debit".

[fauigerzigerk]

Yes, sorry, I was defending the established terminology without making clear why.

My problem is that your alternatives don't just change the words, they change the logic. The invariant of debit/credit is that they need to balance out.

If you choose words that can occur on both sides of the equation then this is no longer true and you're throwing out a lot more than just the admittedly unintuitive meanings of these words.

[lisper]

> My problem is that your alternatives don't just change the words, they change the logic.

No, they don't. They just change the words you need to express the logic.

> The invariant of debit/credit is that they need to balance out.

Sure. So? If I give you a dollar, that's going to balance whether we call that a debit to me and a credit to you or a credit to me and a debit to you. The labels don't matter.

[fauigerzigerk]

What matters is that the labels are different on each side of the equation.

That contradicts your suggestion that we should use the intuitive meaning of the words and it contradicts your suggestion to 'just use "credit" for any increase, and "debit" for any decrease'.

Let's say a company raises equity (i.e it issues new shares), money comes into the bank account. In traditional terminology that would result in:

  debit bank
  credit equity

According to your suggestions, however, raising equity would result in

  increase bank
  increase equity

This violates the principle that the sum of labelAs need to cancel out (or balance out) the sum of labelBs. And this is why I said that you're changing the logic.

[dudinax]

The common English use of 'credit' and 'debit' is correct, as they ought to be since we learned them from banks.

Most people are only aware of one type of account, a liability account managed by the bank in their name.

The mistake is that we talk about them as "our" accounts.

[lisper]

> The common English use of 'credit' and 'debit' is correct,

Yes, by definition.

> The mistake is that we talk about them as "our" accounts.

No. The mistake is the failure to recognize that every account is actually two different accounts, one for each party to a transaction. A bank account looks different to the bank than it does to a depositor or to a borrower. To a depositor, a positive balance is an asset -- quite literally "money in the bank". To the bank, a positive balance in a deposit account is a liability, a loan that it has taken from the depositor on which it must pay interest (at least sometimes) and which it must eventually pay back. To a borrower, a positive balance on a loan is a liability, to the bank it's an asset. Every financial asset is a liability to some counterparty. Even cash is a liability to society at large. So whether something is an asset or a liability depends entirely on your point of view, and so if both parties are going to use the same number to represent an account balance, it is an arbitrary choice what the sign represents. A positive number is always going to be an asset to one party and a liability to the other. Which is which is totally arbitrary, except that there are some deeply entrenched conventions: a positive balance on a deposit account at a bank represents an asset to the depositor, a liability to the bank. A positive balance on a loan represents an asset to the lender, a liability to the borrower. A positive balance on an invoice represents an asset to the seller and a liability to the buyer. But there is no inherent reason why it has to be that way, it's just tradition.

Likewise, whether "credit" means "increase" or "decrease" is also simply a matter of convention. A "credit" to a deposit account means the balance goes up. A "credit" to a loan account (i.e. a loan payment) means the balance goes down. The thing that unifies these things is that a "credit" is either an increase in an asset or a decrease in a liability since both assets and liabilities are recorded by convention as positive numbers. So in isolation (i.e. without a balancing double-entry transaction), a (positive) credit increases your net worth and a (positive) debit decreases it.

[globular-toast]

It doesn't matter about the person buying lemonade. Their accounts are theirs alone and don't affect your accounts.

[tantalor]

I solve this by remembering "debit = destination" (d=d) in all cases.

Examples:

If you deposit money into a checking account (asset) that is a debit (account increases) because the money "goes to" in that account (destination).

If you borrow money from a credit card (liability) that is a credit (account increases) because the money "comes from" that account (not destination).

The hard part is remembering debit accounts increase with debits, and credit accounts increase with credits.

[braiamp]

Because people don't understand that credit and debit only make sense in the context of the account being applied to. If you deposit money to your bank account, it's a credit in your <name of back account>. If you withdraw money from the ATM, you debit your bank account and credit your cash account. But globally you haven't gotten more money.

[tantalor]

> If you withdraw money from the ATM, you debit your bank account and credit your cash account

You have that exactly backwards!

Assets (like bank accounts and cash) are "debit accounts" meaning they increase with debits and decrease with credits.

When you withdraw money from your bank account, the bank account goes down, so we know that must be a credit to the bank account, while the cash goes up, that is a debit to the cash account.

Your confusion might be due to perspective. From the bank's view your bank account is a liability (credit account) so it increases with credits and decreases with debits.

[ChirronT447]

Do they have it backwards? It sounds like a valid perspective to me. I take money from an ATM: the number in my current account decreases, the cash I have on hand increases. Nothing wrong there.

Sure the banks perspective is different but maybe I'm not interested in that.

I love that this thread is full of people confidentally saying something that sounds correct or at least reasonable and the first reply that comes back is no you've got that wrong and then what your saying also sound's reasonable but it just seems to depend on the context and perspective.

I would have thought accounting a solved problem but apparently not.

[pas]

> accounting a solved problem but apparently not.

well, it is if you do it on books, not in natural language.

since it looks deceptively simple everyone throws around sentences that are screaming for mandatory context.

the whole GAAP (generally accepted accounting principles) (and certs like CFA too) are about codifying this context.

what goes where is the name of the game. can you consider this or that an asset or not? is that an expense or you got credit from your vendor, because they shipped it before you paid it? which quarter does it belong to if they shipped it before new year's eve but we only pay it next financial year? etc... etc...

that said accounting is not a mechanical system. there are quite a lot of degrees of freedom ... but there are of course clearly wrong ways to do it ( https://en.wikipedia.org/wiki/Creative_accounting )

oh, and when someone says debit/credit just use a spray bottle on them and ask them to simply state clearly what happens with the fucking number on which of your accounts, does it increase or decrease. (ie. they should just say that the money goes from this account to that account, and suddenly there's no ambiguity.)

[tantalor]

From the perspective of the person withdrawing their own money from a bank account, that account is an asset, same as the money in their pocket.

In accounting/bookkeeping parlance, "asset" and "debit" have a very strict meaning, but it's our job to make sure we are using them correctly and we agree that the usage is correct.

> Debits increase the value of asset

https://www.netsuite.com/portal/resource/articles/accounting...

> Asset accounts: Debit Increase, Credit Decrease

https://www.chase.com/business/knowledge-center/manage/debit...