[EvanAnderson]

The accounting equation is the right thing to think about. People want debit and credit to mean something more than they need to.

My 100-level accounting instructor said it pretty succinctly: Debit means an entry in the left column. Credit means an entry in the right column. What a transaction means for the business depends on the accounts.

[rahimnathwani]

It sounds like your accounting instructor may have focused too much on implementation details (left/right), and too little on accounting principles.

The terms debit and credit have meaning independent of their columnar position on a traditional ledger. I could create a ledger with the columns reverse or (shocking!) use a computer program with a data structure that doesn't encode the concept of left or right.

I think about it like this:

  CR / Credit / Creditors -> what the business owes
  DR / Debit / Debtors -> what the business owns

A CR entry is an increase is what the company owes (to creditors or shareholders), and a DR is an increase in what the company owns.

A common objection to this is 'what about income and expense accounts'? But those are just equity: https://news.ycombinator.com/item?id=39991837

I wrote more about this here: https://news.ycombinator.com/item?id=32498992

[EvanAnderson]

The sheer amount of discussion this has created (both here and back in August, 2022, when you and I commented back and forth to each other in your link) validates my my instructor's philosophy to me. Concentrating on the accounts and the accounting equation, ignoring any "meaning" for the words debit and credit, results in the "right answer" without a lot of consternation.

[ChirronT447]

I completely agree with this; I remember reading that prior thread on double entry accounting and being so frustrated and confused about the use of debit/credit terminology and then, as now, your comments (and others) were very very helpful and insightful.

Something I find frustrating is the - almost - endless debate and nitpicking on small details or elements implied but not explicitly stated...but I guess people are trying to be helpful (or right).

I didn't have an account to comment then but I really appreciated your perspective; it was extremely valuable seeing a few people saying 'forget about the credit/debit nomenclature, it's confusing' and recognising not everyone knows the terminology. Now I have an account here and can thank you for fighting the good fight again.

[rahimnathwani]

I agree that the accounting equation is a good starting point. Without it there is no context for the individual accounts.

Over the ~20 years since I qualified as an accountant, I've found the concept of debits and credits useful. It has saved me from memorizing rules (like what's on the left and what's on the right), to design charts of accounts, to design rules for recording transactions etc.

Someone who doesn't ever need to design charts of accounts or accounting policies, and is never called upon to verify the correctness of an accounting approach, probably doesn't need to understand debits and credits. They can read a balance sheet and income statement without thinking about the concept.

And many people (even bookkeepers and accountants) are content to memorize rules without needing to understand their source.

But that doesn't mean the underlying concepts don't exist, or that they aren't valuable.

Imagine if there were a subreddit for accountants, some of whom dabbled in coding. There might be a back and forth about principles of objects oriented design. The general consensus might be that it's pointless to understand the principles, and that it would be better to focus on some small set of rules of thumb, that give the right answer in most cases.

They might be right in that context (accountants who code on the side), but it doesn't mean the principles don't exist or aren't valuable for people who do that stuff all the time.

(BTW I think accounting is, in general, taught very poorly. I wish more instructors used Frank Wood's books. An intuitive grasp of debits and credits is really useful and not hard to pick up, yet many people spend a semester studying accounting without developing any intuition at all.)

[lurkingmba]

That's too simple. That logic roughly works the balance sheet. However, it says nothing about the income statement.

For the income statement, CR -> revenue and DR -> expense.

[rahimnathwani]

I addressed this earlier: https://news.ycombinator.com/item?id=39991837

When you record transactions in accounting, you're updating various account balances, such as assets, liabilities, and equity. These updated balances contribute to the creation of the balance sheet, which provides a snapshot of a company's financial position at a specific point in time.

The income statement, on the other hand, reflects the changes in these balances over a period of time. There's nothing special about the line items on the income statement (e.g. revenue or expense). Any value on the income statement represents a change in what the company owns (assets) or what it owes (liabilities or equity).

[lisper]

> Debit means an entry in the left column. Credit means an entry in the right column

But that just shifts the arbitrariness of the whole thing from the words "debit" and "credit" to the words "left" and "right".

[EvanAnderson]

I think his intent was to prevent students from fixating on making the words debit and credit "mean" something by themselves. A debit doesn't have some intrinsic meaning about the "flow of money". It's just an entry in the left column. On the other hand, a debit to Accounts Receivable actually means something.

[lisper]

> A debit doesn't have some intrinsic meaning about the "flow of money".

But it does. "Debit" is an English word with an established meaning in common usage. It means to take money out of an account. It is related to the word "debt" which is something that decreases the net worth of the debtor and increases the net worth of the creditor. If you overpay a bill, the (positive) difference between what you paid and what you owed is a credit on your account, and can be used just like money to pay your next bill.

[mhink]

That's not entirely correct- or at least, it's more complicated than that. The question of whether a debit/credit increases/decreases an account has to do with the kind of account you're talking about.

When I deposit money, it modifies two accounts at the bank:

- the account which represents how much money they owe me - and the account which represents how much money they have on hand.

The former is a liability, and the latter is an asset.

The meaning of debit/credit is reversed between these two types of account. So, when I deposit $100, the entries entered are:

    - CREDIT mhink's account $100 (increasing liability)
    - DEBIT cash account $100 (increasing asset)

Since we only see one side of this, we start to associate "debit" with "less money for me" and "credit" as "more money for me".

Oddly enough, another common financial situation reinforces this interpretation from the other direction: accounts with utility providers. Unlike the bank, your account at the utility company represents how much you owe them. So the meaning of debit/credit is reversed, but so is the direction of responsibility: your account at the utility provider is money you owe them, which is an asset. So when I pay them $100, the entries entered are:

    - CREDIT  mhink's account $100 (decreasing asset)
    - DEBIT   cash on hand $100 (increasing asset)

[lisper]

The problem is that whether something is an asset or a liability depends on your point of view. If I have $100 in cash, that is an asset to me and a liability to the rest of society. If I have a $100 loan, that is a liability to me and an asset to my creditor. So there is no way to say whether something is an asset or a liability in an absolute sense. Every debt is an asset to the creditor and a liability to the debtor.

This has nothing to do with labeling transactions so that the labels conform to the common meanings of English words. When an account representing assets has its balance go up, that's a credit. When an account representing a liability has its balance go up, that's a debit. And vice versa. If I, say, draw down a line of credit for $100 and deposit the funds in my checking account, then from my point of view, my LoC should debited by $100 and my checking account should be credited for $100.

This makes sense regardless of how you think about the LoC. If you think of the available credit as an asset, then when you draw down the LoC the available credit balance goes down and it's a debit. If you think of the amount owed on the LoC as a liability, then when you draw down the LoC the amount owed goes up and it's still a debit.

> CREDIT mhink's account $100 (increasing liability)

No. This transaction does not increase liability in any absolute sense. It increases liability only from the bank's perspective. From your perspective, it increases assets.

[epcoa]

> It increases liability only from the bank's perspective.

You missed the context: When I deposit money, it modifies two accounts at the bank.

It appeared to me they were very much explaining this from the banks or utility company’s perspective.

[pessimizer]

> If you overpay a bill, the (positive) difference between what you paid and what you owed is a credit on your account

Or it's a debit on the company's account. I think that's the point that was being made; not to confuse technical terms with English common usage, and not to go to the dictionary or etymology(!) as the arbiter. Debits are credits and credits are debits, but the real question is which column does it go into.

Same nature as discussions about clients/servers.

[lisper]

> Or it's a debit on the company's account.

That's exactly right. They owe you money, so it is (or at least it should be) a credit on your account, and a debit on theirs. But that is not what the definition given in the article says. TFA's definition of "credit" was "An entry that represents money leaving an account" and likewise a debit is "An entry that represents money entering an account." So when you paid your bill, that was (by the articles definition) a credit to your checking account and a debit to your account with company whose bill you were paying, which is exactly backwards. According to the standard English definitions, a credit is something that makes your net worth go up, and a debit is something that makes your net worth go down. So when you pay your bill, that should be a debit to you (cash going out decreases your net worth) and a credit to the counterparty (cash coming in increases their net worth).

> Same nature as discussions about clients/servers.

How so? It seems to me that distinction is clear: the client is the machine that initiated the connection, the one that did the DNS lookup.

[wodenokoto]

But at that point how can you tell if something goes left or right?

[fauigerzigerk]

And what if there are no columns? Google "journal entries for X" and you're going to find something like this:

  Dr accountX £100
  Cr accountY £90
  Cr accountZ £10

Left and right was fine when T accounts were universally used to record entries, but that's no longer the case.

[eviks]

I did, opened one random top result

https://www.deskera.com/blog/journal-entries/

And got left/right as explanation and also as left and right columns

[fauigerzigerk]

Clearly I overstated my case. I'm not denying that columns are often used, especially in educational material. It's just no longer as universal as it once was.

https://www.accountingweb.co.uk/any-answers/vat-double-entry

[freedomben]

Yeah, GP really undermined their point with the whole "google x" and see.

For most people who aren't accountants though, the spreadsheet thing is correct.

[mikeyouse]

Right - the words themselves aren't as important as the concept. Any replacement word will suffer the same confusion. There's a reason that the language of debits and credits has largely remained the same for the past thousand years, and the language describing accounting is unlikely to be 'optimized' by first-principles CS concepts from people only loosely familiar with the field.

[grantc]

Well said. It's actually not complicated or arbitrary. It also works effectively in practice over the gdp of the known universe. If you are savvy enough to be interested in and understand the different computing approaches to double-entry bookkeeping, one can assume the whole DR/CR concept isn't beyond you.

[eviks]

There's a reason, but it's definitely not that any replacement is just as bad since that's close to an impossibly strong statement