Comments on: Double Entry Accounting - Transactions - 2 of 2 http://www.accountingunplugged.com/2008/08/28/double-entry-accounting-practice/ The System Behind the Software Tue, 07 Sep 2010 13:29:44 +0000 http://wordpress.org/?v=2.6.5 By: admin http://www.accountingunplugged.com/2008/08/28/double-entry-accounting-practice/#comment-122 admin Mon, 29 Sep 2008 18:28:55 +0000 http://lawlor.wordpress.com/?p=41#comment-122 That is a great question. The reason it seems backwards is that the Bank is telling you how the transaction affects Their Books which is a mirror image to the way it affects yours. The money you put in the bank doesn't belong to the bank, so it is not their asset, it is a liability which they must repay to you. When you add money to your account at the bank it is a Debit in your books (increased asset) and a Credit to theirs since it Increases their Liabilities. When you withdraw money, it is a Credit to your books (decreased asset) and a Debit to theirs since it is Decreasing their Liabilities. The system is setup so that Debits and Credits will always mean the same thing in each circumstance. It can be confusing when the bank uses the terminology to describe the way a transaction affects them and not the way it affects you. Just remember that an asset or expense to you is either a liability or a source of income to them and so the accounting will be opposite for each of you. That is a great question. The reason it seems backwards is that the Bank is telling you how the transaction affects Their Books which is a mirror image to the way it affects yours.

The money you put in the bank doesn’t belong to the bank, so it is not their asset, it is a liability which they must repay to you. When you add money to your account at the bank it is a Debit in your books (increased asset) and a Credit to theirs since it Increases their Liabilities. When you withdraw money, it is a Credit to your books (decreased asset) and a Debit to theirs since it is Decreasing their Liabilities.

The system is setup so that Debits and Credits will always mean the same thing in each circumstance. It can be confusing when the bank uses the terminology to describe the way a transaction affects them and not the way it affects you. Just remember that an asset or expense to you is either a liability or a source of income to them and so the accounting will be opposite for each of you.

]]> By: Julie http://www.accountingunplugged.com/2008/08/28/double-entry-accounting-practice/#comment-120 Julie Sun, 28 Sep 2008 19:23:20 +0000 http://lawlor.wordpress.com/?p=41#comment-120 One thing I haven't found a good answer for is why "credit" and "debit"? For example, if I pay $400 rent from my checking account, then rent gets $400 in the debit column and checking gets $400 in the credit column. But my checking account gets DEBITED, not CREDITED. Why is this backwards? One thing I haven’t found a good answer for is why “credit” and “debit”? For example, if I pay $400 rent from my checking account, then rent gets $400 in the debit column and checking gets $400 in the credit column. But my checking account gets DEBITED, not CREDITED. Why is this backwards?

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