[GNC] I need basic help

[Edwin Booth]

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. 


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On Friday, October 20, 2023, 9:05 AM, Michael or Penny Novack <stepbystepfarm at comcast.net> wrote:

>> I need to wrap my head around the whole “debit/credit” concept.
> One thing that helps me keep it straight is that money flows from credit to debit. Credit the account that money is coming from, debit the account that money is going to. There is more to consider of course, like whether an account usually has a credit or debit balance, but you don't have to learn everything at once.

That might not be of much help (understanding the terms "debit" and 
"credit")

History might, remembering that double entry bookkeeping dates back to 
to times when:

a) European mathematics had not yet accepted negative numbers.

b) Latin was still used for communication between the educated (who 
might otherwise not be speaking the same language)

In other words, the "senses" of amounts in bookkeeping were "debit" and 
"credit", not "positive" and "negative". "Debit" comes from Latin 
"he/she/it owes (me)" and "credit from "he/she/it trusts (me)". Back at 
the start., there were no accounts of (temporary) type "income" and 
":expense", and the people using bookkeeping were moneylenders (bankers) 
who of course might also have other business. So .........

Assets --- besides the obvious "cash" would be the loans given out, so 
natural that those amounts be "debit" (somebody owed you the money)

Liabilities -- these would be loans that the business had taken out, 
again natural that the sense be "credit" (somebody was trusting you for 
the money)

Equity --- this will be less obvious why "credit", except that is what 
will be necessary to balance the fundamental equality (the sum of the 
debits must equal the sum of the credits)

The big advance that the banking system of that day provided to trade 
was dealing in liabilities. Thus a merchant in place A planning to 
travel to place B to purchase a cargo of goods to ring back would go to 
the merchant/lenders of A and ask if any held a liability of a 
merchant/banker in place B. If yes, would purchase that debt (having it 
signed over) and could then travel to B carrying this "paper" rather 
than gold, etc. That piece of paper, requiring endorsements, much less 
subject to risks of piracy, etc. On arriving at B, would sell that 
liability for the local currency to make his purchases. In other words, 
these debts became a form of money.

That might help you understand why cash in hand was "debit" like the 
loans owed. Used the same way in trade. Large amounts being transferred 
would normally be in the form of these documents. Thus as long as trade 
between A and B was reasonably in balance, very little actual gold had 
to move back and forth.

Michael D Novack


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