[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.

[lisper]

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

Yeah, I get that. I don't see what that has to do with the labels used to describe the transaction.

Actual physical cash is weird because it's an asset to its owner and a liability to the rest of society. But when you deposit cash in a bank, the bank doesn't become the owner of the cash. It has borrowed that cash from you. So that cash is both an asset (because having borrowed it from you it can turn around and loan it to someone else) and a liability (because the bank is in debt to you for the amount of the deposit).

A simpler example is depositing a check. In that case, money just gets transferred from the payor to the payee. It's a debit from the payer's account and a credit to the payee's account. Or at least that's how it should be.

[mhink]

> 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.

What you're missing here is that if I were to keep my own records, I would also list two accounts. When I look at my bank statement online, what I'm looking at is the bank's records. If I kept my own books, it would be the same thing, but in reverse, like this:

    MHINK'S RECORDS
    - CREDIT mhink's cash account $100 (decreasing mhink's assets)
    - DEBIT mhink's account for the bank $100 (increasing mhink's assets)

    BANK'S RECORDS
    - CREDIT the bank's account for mhink $100 (increasing the bank's liability)
    - DEBIT bank's cash account $100 (increasing the bank's assets)

> It has borrowed that cash from you. So that cash is both an asset (because having borrowed it from you it can turn around and loan it to someone else) and a liability (because the bank is in debt to you for the amount of the deposit).

The cash itself isn't both things- it's only ever an asset.

When I transfer cash from my wallet to the bank, I'm converting $100 of value from one type of an asset to another: from cash, to "a debt I'm owed by the bank".

The bank also didn't change its total position. It took on "a debt owed to mhink" (a liability), but gained "cash" (an asset).

[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?