[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).

[lisper]

> What you're missing here is that if I were to keep my own records, I would also list two accounts.

The passage you quoted is from an earlier comment, so you are responding to something way out of context.

Let's rewind:

> 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.

No. There is no such thing as "an asset" without further qualification. The money you owe the utility company is an asset to them, but to you it's a liability. This is true for all financial instruments, including cash. Cash is an asset to its owner, a liability to society at large. So...

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

No, cash is a liability to society at large. The bookkeeping for this happens at the central bank. See:

https://www.federalreserve.gov/monetarypolicy/bst_frliabilit...

"The major items on the liability side of the Federal Reserve balance sheet are Federal Reserve notes (U.S. paper currency)..."