update suggestion for documentation and use of credit/debit & increase/decrease

[Jon Lapham]

Richard Schilling wrote:
> I'm going through the GnuCash help files, and notice the following in 
> section  2.2 of the Tutorial and Concepts guide (to which I'd like to 
> suggest changes - see below):

Excellent.

> ================================================================
> Accounting Terminology
> 
> Accountants use the terms debit and  credit to describe whether money is 
> being transferred  to or  from an account. Money is recorded in the 
> debit column, which is always the left column, when it is being 
> transferred to an account. Money is recorded in the credit column, which 
> is always the right column, when it is being transferred from an 
> account. Money always flows from the right column of one account to the 
> left column of another account.


Yeah, that is really not very clear, is it.

> ====================================================================
> 
> Couple of things I would like to suggest changing:
> 
> The concept of "transferring money to" and "from" an account is somewhat 
> vague.  "Transferring money into" a revenue account, for example, means 
> increasing that account balance - an entry on the RIGHT side of the 
> ledger.  It's probably less confusing to simply say that some types of 
> accounts (like Assets and expenses) INCREASE when transactions are 
> recorded on the left side, and other types (like equity and revenue) 
> increase when transactions are recorded on the right side.
> 
> Here's what I would suggest for verbiage.  Pick your own words, but 
> something along these lines would be, IMHO, clearer - especially because 
> some basic accounting concepts are previously covered in the manual:
> 
> =======================================================
> Accounting Terminology
> 
> One of the biggest roadblocks you'll have to overcome when learning 
> accounting terminology is the use of the words debit and credit.  To the 
> average person, debit indicates a reduction in the money you have - like 
> a debit on their credit card or bank account.  And, likewise a credit 
> indicates some type increase in the money they have, like of refund or 
> income.  But, in accounting, the terms debit and credit refer strictly 
> to how a transaction gets recorded in any given account.  It has nothing 
> to do with "increasing and decreasing what you have", per-se.

There is another incorrect way to think about this, which is probably 
quite common.  :(

A "credit" could be incorrectly (but logically) defined as something 
that increases the value of a single account.  Conversely, a "debit" 
could be incorrectly (but logically) defined as something that decreases 
the value of a single account.

This is of course wrong because (for example) a paycheck deposit goes in 
the debit column of your savings account.

> Accountants use the terms debit and credit to describe which side of the 
> account ledger a transaction is recorded.  When money is recorded on the 
> left side of an account, the amount is a debit.  Whenever money is 
> recorded on the right side of an account, the amount is a credit.
> 
> Money is recorded in the debit column, which is always the left column, 
> when it increases an asset or expense account. Money is recorded in the 
> credit column, which is always the right column, when it increases any 
> equity, liability, or income account.
> 
> (notice I address all five account types discussed in section 2.1.1)

After reading your text, which is clear, I must admit that I was still a 
bit confused.  This is really bizarre stuff, why is it this way?

I found this web page...
http://www.quickmba.com/accounting/fin/debits-credits/

...which explains *why* the accounting terms credit and debit are so 
different from what logic would dictate.  Apparently, it is because 
accounting looks at things from the perspective of the bank.

Thus, money deposited into your personal savings account (an asset 
account from your perspective) goes in the debit column because the 
account is considered a liability from the bank's perspective.  Wow.

Do we really want to get into all of this?  I imagine this confusion is 
the reason why the "credit" and "debit" column of GnuCash have all been 
renamed (ie: renamed to "Deposit" and "Withdrawal" for a savings account).

-- 
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  Jon Lapham  <lapham at jandr.org>                Rio de Janeiro, Brasil
  Personal: http://www.jandr.org/
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