Accounting 101 Debit -vs- Credit

[Eric E Moore]

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Matt Armstrong <matt@lickey.com> writes:

> I've turned "Use accounting labels" on because I was getting confused
> when the informal synonyms used in GnuCash kept changing depending on
> the account I was in.
>
> Anyway, the terms seem to be used the exact opposite of what I would
> expect.
>
>     Account:Liquid:Savings debit $0.14
>     Income:Interest credit $0.14
>
> I would expect interest income to credit my Savings account, since the
> balance increases.  I suppose this comes from my ATM Debit card, where
> I use it to withdraw money.  So I think of debit as "withdraw."

> Can someone with accounting knowledge explain to me the accounting
> definitions of debit/credit?  The dictionary was no help.

The basic rule is debits increase assets, and decrease liabilities,
and credits increase liabilities and decrease assets.

>From the bank's point of view, the money in your account is a
liability (they have to pay you up to that amount of money on demand).
So when you withdraw money, they debit your account (decreasing it's
balance).  When you deposit a check, they owe you more money, and they
credit the amount of the check to your account.

>From your point of view, the bank account is an asset so when you
deposit the check you debit the account.  The trick is to remember
that your bank statement reflects the transactions which the bank
carried involving your account on their books.  So on *your* books,
where they have a debit, you want a credit (since what for them is a
liability, is to you an asset.=20

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Eric E. Moore

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