Help in understanding a basic accounting principle
'An entry which increases an asset account is called a debit.'
So if my bank account is my asset account, when I debit money, money actually goes out so it is a 'decrease'. But the above statement has it the other way round.
Kindly help me understand this.
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There are two basic issues here. First, there is the difference between accounting terms and their dictionary definitions. Second, once you dig into it there are dichotomies similar to put vs call options, long sales vs short sales, bond yield vs interest rate. (That is, while they are relatively simple ideas and opposite sides of the same coin, it will probably take some effort to get comfortable with them.)
The salient points from the Wikipedia article on debits and credits:
In double-entry bookkeeping debit is used for increases in asset and expense transactions and credit is used for increases in a liability, income (gain) or equity transaction.
For bank transactions, money deposited in a checking account is treated as a credit transaction (increase) and money paid out is treated as a debit transaction, because checking account balances are bank liabilities. If cash is deposited, the cash becomes a bank asset and is treated as a debit transaction (increase) to a bank asset account. Thus a cash deposit becomes two equal increases: a debit to cash on hand and a credit to a customer's checking account.
Your bank account is an asset to you, but a liability to your bank. That makes for a third issue, namely perspective.
"Debits'" and "Credits" are terms used in double-entry bookkeeping. Each transaction is entered in two different places to be able to double-check accuracy. The total debits and total credits being equal is what makes the balance sheet balance.
For explaining debits and credits, wikiversity has a good example using eggs that I found helpful as a student.
Debits and Credits
When a financial transaction is recorded, the Debits (Dr) and Credits (Cr) need to balance in order to keep the accounts in balance.
An easy rule to remember is, "Debit the Asset that Increases"
For example, if you want to practice accounting for cooking a simple breakfast, you might proceed as follows:
Dr the frying pan 2 egg yolks
Dr the frying pan 2 egg whites
Dr the trash basket 2 egg shells
o Cr the carton of eggs 2 whole eggs
To record breaking the eggs and putting the eggs in the frying pan
In this transaction, an asset, (the egg) is split into parts and some of the asset goes in the pan and some in the trash. A Debit (Dr) is used to show that the assets in the pan and the trash both increase. A balancing Credit (Cr) is used to show that the amount of assets (whole eggs) in the egg carton has decreased.
This transaction is in balance because the total Credits equal the total Debits. Everything that is covered by the Debits (yolk, white and shell) is also covered by the Credits (one whole egg)
In this context, we're talking about terms of art in accounting, specifically double-entry book-keeping.
In accounting lingo, an "asset" account represents an actual asset and it's value. So if you buy a car with a loan for ,000, you apply a ,000 debit to the asset account and a ,000 credit to the loan.
Debits and credits are confusing when you first start learning about accounting.
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