It may be because I have a lot of experience and training in accounting,
but it seems to me that using different terms depending on the account just
adds to the confusion. To me, using just "debit" and "credit" is a lot
easier - but one must understand three accounting basics:
1. that every account belongs in one of 5 different groups,
2. that, depending upon which "group" the account is in, it will normally
have either a debit or credit balance,.and
3. that the sum of debits minus credits in each transaction must equal zero
- without exception.
*Grouping* *"normal balance"*
Assets debit
Liabilities credit
Income credit
Expense debit
Equity credit (but note that, if the business has been
incurring more expenses than revenue, the Equity balance will be abnormal -
a debit)
A "normal" posting to any account increases its "normal" balance. So an
increase to an asset account (checking, savings, investments, Accounts
Receivable, etc) would be a debit as would an increase to any expense
account.
However, any increase to a liability account's "normal" balance (credit
card, loan) would be a credit as would any increase to an Income account.
This explains the confusion over whether credit means "increase" or
"decrease". *It means neither* in accounting terms. Whether a credit
increases or decreases an account depends on what type of account it is
(i.e. which "grouping" the account is in).
So, some ordinary entries for those of us just keeping track of home
finances would include:
*debit
(dr) credit (cr)*
*paid for groceries w/credit (increases both balances):*
Visa card
50
groceries expense 50
*paid credit card from checking acct (decreases both balances)*
checking acct
25
Visa card 25
*got my paycheck (increases both)*
checking acct 600
Income
600
*Balances (all normal)*
Checking 575
Visa
25
Income
600
Expense 50
Total *625*
*625*
*Businesses "close books" at the end of the year (income and expenses are
set to zero by making "abnormal" entries in the amount of their year-end
balances). *
*Assets and liabilities are not "closed" but retain their balances.*
Income 600
Expense
50
Equity
550
Hope this helps - or at least doesn't add to the confusion :(
Jim Thomas
On Sat, Oct 21, 2023 at 12:39 PM R Losey <rlo...@gmail.com> wrote:
> On Fri, Oct 20, 2023 at 11:57 AM Michael or Penny Novack <
> stepbystepf...@comcast.net> wrote:
>
> > On 10/20/2023 11:47 AM, Edwin Booth wrote:
> > > Thank you Michael. The ancient history of these terms is really
> > > interesting. I don’t really “get it” yet but I see the idea here. Very
> > > hard to set aside the use of credit and debit in the modern sense and
> > > use them in a very different way. Counter intuitive.
> >
> > Not exactly. The confusion over "modern sense" is something else. Thus
> > when R. Losey says:
> >
> > "It*IS* hard because the accounting use of debit/credit is different
> from
> > the common or colloquial usage of the words. In everyday usage, people
> tend
> > to use "debit" as a synonym for "decrease" and "credit" to mean
> "increase",
> > and that is NOT the case in accounting, as the tutorials helpfully
> > explain."
> >
> > .... No, the confusion is NOT because accounting use is different but
> > confusion over whose books are you looking at. We are sued to seeing
> > these "in reverse" on statements we from from the bank for our bank
> > accounts or credit card accounts because on those it is from THEIR point
> > of view, not ours.
> >
>
> I disagree; I've heard people in non-financial situations use "debit" to
> mean "decrease" and "credit" for "increase"; such as "His recent actions
> have credited his stock of goodwill " or "he owes me; I have a huge credit
> balance with him".
>
> But this is starting to get away from GnuCash.
>
> _________________________________
> Richard Losey
> rlo...@gmail.com
> Micah 6:8
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