Question in accounting.

The first thing to keep in mind is that all people mean when they use the term "debit" and "credit" in the accounting sense is really "adding" and "subtracting" from certain sides of an equation. Technically, debit means "left" and credit means "right." In other words, your "left" side should equal your "right" side.

You should think of the accounting equation as follows:

Assets--> (Debit[Left side, Increases|Credit [Right side], Decreases)

EQUAL

Liablities--> (Debit[Left, Lessens|Credit[Right, Increases)

PLUS

SEquity--> (Debit[Left, Lessens|Credit[Right, Increases)

Now go look at the equation I wrote and try to increase, say, the assets. If you increase the assets, that means you have put the figure on the left side, which also, by definition, means you debitted the asset account and which also by definition means an increase to the asset account. What are the possibilities to balance this equation? Well, you could subtract from the asset side, to get rid of what you just did, and that would entail creditting or decreasing the asset side, which, by definitition means putting the figure on the right side.

You could also add what you just put on the asset side of the equation to the right side of the equation. If you do this, notice that for liabilities and SEquity, it is conveniently defined so that a Credit increases those accounts. It's also listed on the right side, so if you choose this, your left and right sides should equal.

Of course, in real life, the situation will dictate whether you stick to one side of the equation or deal with both.

No.

The only meaning debit has with respect to accounting is left side, and so credit means right side.

An account can increase on the left -or- right depending on the nature of the transaction.

In order to balance, we'd better be dealing with both sides of the equation... in real life. :)

Well, not necessarily... What I meant was ...say, when you buy a building with cash. You are only dealing with the Asset side of the accounting equation then. You add the building to the asset side and subtract the cash.

Exactly, thus the books balance out. We've just traded one asset for another.

The example you gave only confirmed for that particular transaction the debit (lefthand ) side increase and the credit (righthand side) increase. Please give me a specific example where it is not true. I am just learning and this is my first accounting course. Thank you.

Actually, it's true, but it's true by definition...

Increase=I Decrease=D

Assets = Liabilities + SE Debit(I),Credit(D) = Debit(D),Credit(I) + Debit(D),Credit(I)

Make a debit entry. Now, try to make the equation balance without making a corresponding credit.

Try your best!

i used a "teater todder"..(sp?) to assist students in picturing dbl sided accounting..... where a = l & oe.....they had to always keep it in balance...

That's true in the double-entry bookkeeping system which, by definition, always involves at least one credit and at least one debit. A debit is the left side, a credit is the right side. Every transaction balances the accounting equation:

assets = liabilities + owner's equity

By definition, an increase to owner's equity is a credit and a decrease to owner's equity is a debit. So what happens if the owner picks up $10 from the ground and puts it in his pocket? Besides breaking certain laws requiring reasonable effort to find the owner of the bill, his net worth increases, which is a credit. The only side left over for the cash account is the debit. So a debit to cash is an increase. Assets increase by $10, owner's equity increases by $10, so the equation balances.

Other transactions can be analyzed in similar ways, and somehow, just like magic, you'll never come across a transaction that involves only debits or only credits. There's always at least one of each, and the accounting equation always balances.

Your debits must equal your credits in any given transaction, but you get into dangerous territory in your learning if you think a number there represents an increase every time. Whether a debit or credit is an increase or decrease depends upon which accounts you are using.

I always picture T-tables and normal balances to decide whether it is an increase or a decrease. I.E. if an asset account is credited, it is a decrease because its normal balance is a credit. If a liability or equity account is debited, it is a decrease because their normal balances are credits.

I think the point was explained to you in an odd way. Yes, for every entry that is a debit, there is an equal corresponding credit (and sometimes it is a group of debits and/or credits). The sum of all debits and the sum of all credits must equal. Hence, when you add a number to one side causing you to need to add an equal number to the other, the SUMS of debits and credits both increase. But in the real world, we use the words increase and decrease in relation to accounts, not debits or credits.

Was I clear as mud?

May I suggest that you go to the following link:

Under the "Special Features" heading, click on the "Crash Course in Construction Accounting". This is a multimedia presentation that clearly and simply demonstrates how debits and credits affect the balance sheet and income statement.

You will need a DSL or better to download this file.

Good luck,

Arnold

snipped-for-privacy@yahoo.com wrote:

This site has one of the best explanations to the fundamental concepts of accounting. It walks you through an exmaple to understand what accounting really is, the debits and credits..... simple and easy to understand by everyone...