[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.

[lisper]

It doesn't matter whether you encode the signs in the terminology or in the equation. If you say X + Y = 0 i.e. X = - Y and stipulate that a transaction adds to X and subtracts from Y, that is completely equivalent to saying X - Y = 0 i.e. X = Y and stipulating that a transaction adds to both X and Y.

[fauigerzigerk]

Sure, but if you want to keep your terminology consistent with the math, you would then have to make a distinction based on the types of the accounts involved in a journal entry.

E.g, this would be correct:

  increase bank
  increase equity

but this would be incorrect:

  increase bank
  increase receivables

If all numbers are positive then there would be no way to check whether the journal entries balance out without considering the account types.

If, on the other hand, you encode the sign in the amounts then the sign would disagree with the semantics of the label and you would have to flip signs based on the account type at the time of recording the entries:

  increase bank $100
  increase receivables -$100

I don't suppose this is what you meant.

[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.