Talk:Debits and credits/Archive 2

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Keeping it simple

This article needs to be simple and concise. (my opinion too - 81.6.48.229 (talk) 16:30, 12 August 2011 (UTC)) If you don't work in the bookkeeping or accounting area, trying to grasp the concept that you don't use positive and negative expressions, but instead use Debit (Dr) and Credit (Cr) to indicate the state of the value. It is tempting to try and explain with examples showing asset examples, liability examples etc. Double-entry bookkeeping, General Ledger and Trial balance go into detail about these topics and have examples. We need to use more linking rather than try and explain everything again. This appear to have lead to confusion looking at all the wiki tags at the top of the article page.

This is such a terribly written article. The map analogy was a horrible idea and should be removed. —Preceding unsigned comment added by 209.163.177.66 (talk) 21:54, 28 September 2010 (UTC)

Agreed. This article is really, really bad, in terms of both style and content. That awful map analogy has to go. I came here looking for a simple information and am now really confused. SaintedLegion (talk) 11:55, 30 September 2010 (UTC)

Can someone confirm this statement

An account represented in a way opposite to what would be expected, such as an asset account recorded as a credit, is referred to as a contra account. An example would be accumulated depreciation, which is a contra asset account, as it reduces the value of an asset.

This was the second paragraph, I have removed it as 1. It confuses the reader 2. Is the terminology used correctly NilssonDenver (talk) 20:26, 7 August 2010 (UTC)

The terminology regarding contra accounts is correct, but it is poorly worded. Accounts have what can be considered a "default" balance. Assets have a debit balance, liabilities and equity have a credit balance. Contra accounts have the opposite balance of what is expected, i.e. accumulated depreciation is a contra-asset account and has a credit balance.

http://www.nysscpa.org/glossary/term/194 http://www.nysscpa.org/glossary/term/734 —Preceding unsigned comment added by 66.68.143.5 (talk) 19:25, 15 October 2010 (UTC)

Copyright problem removed

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Origin of debit and credit

I've completely rewritten this section, and removed the bit about the terms descending from Middle French. That idea makes sense, but it also makes sense that the terms descended from any number of Latin/Romance languages, and I couldn't find a reference for it. If you know of one, it would be appropriate to include that in the origin section as another theory of the origin of the terms. Ivanvector (talk) 17:48, 6 February 2011 (UTC)

Merger and clean-up of Debits and credits page

The merger proposal of the Debits and Credits (IFRS) page to the Debits and credits page will be updated as soon as possible. Please post any objections to the merger ASAP as I will be updating the page within the next few days of this post. Any assistance or comments related to the revision would be greatly appreciated. Sweetmat (talk) 19:45, 3 March 2011 (UTC)

Removal of "unclear" banner

It is not Wikipedia policy to tag an entire article as being unclear. Sections or paragraphs that are unclear should be marked up see: Wikipedia:Please clarify for more instructions on how to tag parts of an article that are unclear. Sweetmat (talk) 14:30, 13 March 2011 (UTC)

Globalize

The Article primarily concentrates on the American or Accounting Equation approach. The Traditional approach is not well dealt here. All examples are also from the American approach. There should be separate sections to deal with the two approaches.-- R.Sivanesh ✆ © 17:05, 13 July 2011 (UTC)

Please explain the “traditional” approach if you decide to add your information back onto this page. You should note that there are some grammatical errors in your information and there are no citations or forms of evidence to substantiate your claims. Please reconsider your additions and make revisions to your statements. Sweetmat (talk) 17:37, 29 July 2011 (UTC)

Can you suggest a reference that explains the difference between American accounting and European accounting? Greensburger (talk) 18:21, 14 July 2011 (UTC)
I agree with Greensburger, there is no such problem as accounting within the United States and Europe is similar and both are based on the same principles bar a few minor terminology differences. I elect to remove this banner from the page. Sweetmat (talk) 14:47, 25 July 2011 (UTC)

From what you people are discussing, it seems that you are no aware that there is another approach in accounting. So let me explain it for the knowledge of all those who dont know that is another approach. Under the traditional approach all accounts are classified into three types namely, Real Accounts, Personal Accounts, and Nominal Accounts. Consequently there are three rules to determine what is debit and what is credit. The rules are known as the golden rules of accounting. The Golden rules of accounting is as follows:
  1. Real account: Debit what comes in and credit what goes out
  2. Personal account: Debit the receiver and Credit the giver
  3. Nominal account: Debit all expenses & losses and Credit all incomes & gains
This approach is also explained in Double-entry_bookkeeping_system#Traditional_approach. For more info you may refer pages 30-34 in [1]. Is this sufficient to add back the content?-- R.Sivanesh ✆ © 12:30, 1 August 2011 (UTC)

I can now see where you are coming from and I do understand the terminology. The reasoning for my changes is due to the fact that you were not being very specific in your earlier additions and that there were no citations evident. I am not the gatekeeper of this topic though I do try to uphold a good quality standard and your earlier additions were vague and did not seem to fit in anywhere. If you look at the bottom of the Debits and credits page you will see the section for Real, Personal and Nominal accounts and you can see that I have requested that this section be expanded. Please consider placing your contributions there. Sweetmat (talk) 14:01, 1 August 2011 (UTC)

The British approach you described is so greatly different than the American approach, that to add a full description to the present article would be greatly confusing to American readers. A new article Debits and credits (British approach) should be written that explains this "traditional approach" to non-British readers. Please do not title it "Debits and credits (traditional approach)" because to Americans the traditional approach is the American approach. The new article should explain in detail the meaning of "real account", "personal account" and "nonimal account" and how they interact. This bulky material would be greatly confusing to American readers if added to the present article. Greensburger (talk) 14:20, 1 August 2011 (UTC)

Another reason why some have not elected to use the "traditional" three-rule approach is that it caused more confusion. With the five rule approach there seems to be less confusion as it is more structured and specific (see earlier editions of this article and you will see the three rule approach which caused major confusion with people). I like Greensburger's views on this issue, though I do not think that the five rule approach is only American based as many Europeans use the five method approach today. Creating a new article I do not think is the answer either, as I tried to make my own article specifically for European users (see more talk above) based on IFRS only and it was seen as redundant. I then merged the two articles into what you see here today. I do agree that the three method approach should not be "over inflated" as users to this page are looking for up-to-date and clear information to learn from. I think that it is evident that clarity in this article is priority. Sweetmat (talk) 14:37, 1 August 2011 (UTC)

I just noticed the "Real, personal, and nominal accounts" section at the end of the present article. So I added the three rules to that section. Greensburger (talk) 15:35, 1 August 2011 (UTC)

I personally feel that there should be one single article which clearly explains both the approaches. The two approaches should be clearly termed as "American or Accounting Equation Approach" and "British or Traditional Approach". This will not only give an insight to the American users but also will kindle their interests to read the article further. A separate article will spoil the whole sequence and serve no purpose. -- R.Sivanesh ✆ © 17:21, 1 August 2011 (UTC)
I agree about the single article - the present article. That is why I added the 3 rules to the present article in the "Real, personal, and nominal accounts" section. This section should be expanded to explain the historical reasons why there are differences, the pros and cons of each approach, etc, which is outside of my knowledge. Greensburger (talk) 20:40, 1 August 2011 (UTC)

Looking much better

I think that this page has had some great additions and the content seems to be mostly there. I think that people who are interested in adding to this page should consider expanding the section on Real, Personal and Nominal accounts so that the content is up to standard. There are however a few pointers that are to please be considered:

  • There are not enough citations and therefore content that is not cited well and not verified after a reasonable amount of time must be removed. Please help investigate and cite information added to this page.
  • Whilst the content on this page is sufficient, the structure needs some work. I propose that the section headings be revised and that redundant content be merged together so that there is not a conflict of ideas.
  • People with an excellent level of English ability should please review and revise the content that has questionable style or has bad grammar.

A thanks to all that have helped improve this page over the last few months. As always, due to the somewhat complex content of this page, any additions should be made as clear as possible for viewers.--Sweetmat (talk) 10:18, 9 August 2011 (UTC)

Left and right side

"'Dr' (Debit) simply means left side of a ledger account" - so did I understand correctly, if I turn the sheet upside down, left becomes right, debit becomes credit and the balance of the account is negated in sign?81.6.48.229 (talk) 16:29, 12 August 2011 (UTC)

Technically, from what I understand from your statement you are to some extent “correct” though I would not try to understand this topic solely based on this statement: "'Dr' (Debit) simply means left side of a ledger account...”. I would advise you to read the section labelled "Elements" to explain the difference between the terms "Debit" and "Credit" more thoroughly, depending on the type of account based on the five accounting elements or rules. Please post more comments here should you require more information so that we may improve the understanding of this topic to all viewers.Sweetmat (talk) 19:22, 14 August 2011 (UTC)

Greensburger: Regarding your comment on an edit of the liability section: "It becomes an expense only when it is paid, not when it is a debt to be paid later," you must be referring to the cash accounting method. In accrual accounting, it is different: the service becomes an expense when it is performed, and a good becomes an expense when it changes hands, regardless of when it is paid for. See Comparison of cash and accrual methods of accounting. Heyzeuss (talk) 19:32, 29 September 2011 (UTC)

Good point, so I added "accrued expenses". Greensburger (talk) 01:13, 30 September 2011 (UTC)

Etymology rewrite

I've been away from this for 8 months and you folks have done a great job cleaning up and rewriting this article! Wow, was it ever a mess before.

I've replaced the Etymology section (formerly "origin of debits and credits") with the text I put in that space several months ago. It's interesting to see the evolution of that section. A year ago, there was a block of uncited text about the terms descending from Old French, and another editor tagged it as needing a citation (which it does). I went looking for one, and, frankly, there isn't. What I did find was the source that I cited before, not necessarily about the origin of the words but at least about how they were used in the 15th century in an important historical business text.

Over the next few months, as the article was greatly improved, another editor came along and overwrote that section with a self-referenced section about the definition of the words in an unspecified accounting dictionary, starting with this edit. Over time several other editors tried to improve that definition but it seems it was eventually deleted or lost. Separately, someone else created the etymology section and inserted basically the same Old French definition, except with Italian added in. And that is basically the same definition that I've become familiar with as an accounting student, except that I can't actually find it written in any of my textbooks. It's like an oral tradition or something, folklore that we all believe and that makes sense if you try to think about it, but there's nothing verifiable to cite. So I've replaced it again with what I wrote before.

Anyway, sorry for the narrative, and I don't mean to be combative and will certainly bow to consensus, but the Pacioli description with a working link is better than the Old French theory that is missing a citation. Unless someone has a citation for it, that is. — Preceding unsigned comment added by Ivanvector (talk • contribs) 01:32, 24 October 2011 (UTC)

Unnecessary/useless banners

Please indicate specific sections that need to be corrected and do not tag the entire article. Or rather place the banner in the section that contains the errors.Sweetmat (talk) 21:42, 19 November 2011 (UTC)

Please make use of the following link for cleanup templates Wikipedia:Template messages/Cleanup and use specific templates only.

Radical reformation

To me this article had become a collection of disjointed and in some cases unrelated sections trying to explain Debits and Credits. I have taken the bold and radical move of rewriting much of the article and combining and summarising sections already in the article. There were far too many examples which to me did not explain what a debit or credit is or what it does. 

  A Debit value increases a Debit value or decreases a Credit value. A Credit value increases a credit value or decreases
  a Debit value.

— NilssonDenver — (continues after insertion below)

"Increases, decreases, values" - what a load of garbage. A credit is where something comes from and a debit is where it ends up. Period, that's all, the end, finished, done.
Euc (talk) 14:08, 30 April 2013 (UTC)

In isolation in an article like this, it is difficult to explain the above statement without also understanding the Double-Entry bookkeeping system. Simply making the article longer will not explain it any better. NilssonDenver (talk) 22:44, 25 November 2011 (UTC)

This article is for people who do not fully understand what debits and credits are and what they do and why accounting is done that way. To such people, only examples can make this understandable. Lots of examples. This article is not a place to attempt brief definitions. Your sentence "A Debit value increases a Debit value or decreases a Credit value." is nonsense to readers who do not yet grasp the basic concepts. Your attempts to improve the article actually make it much worse. I am reverting, because the prior version contains much that should be part of the article. Greensburger (talk) 18:25, 26 November 2011 (UTC)
I agree with Greensburger's statements in this instance. What you did earlier in my opinion was far worse than what stands here today (you deleted key information and just about everything else). Your work had no citations and did not seem more informative or easier to understand for novices or professionals. Please do not take this criticism as a personal attack and your contributions are requested though I do not think that we need to "be bold" with the current article. Tweaking the article now is the focus. The article has improved greatly over the past few months and is receiving great ratings from the community at large. Rather consider revising sections that are marked up or make smaller but meaningful changes elsewhere in the article. Sweetmat (talk) 09:32, 28 November 2011 (UTC)
In addition to my previous comment, the size of this article is not too large to be reduced so significantly according to wikipedia standards (see: Wikipedia:Article size) for more information.Sweetmat (talk) 11:59, 28 November 2011 (UTC)

Rearchiving

A few years ago I made an archive of this talk page (/Archive 1), but some editors continued making comments on that page, until that page was apparently archived again. I pulled the additional comments and made a second archive (/Archive 2). There probably wasn't any point to this, but it made me feel productive for a few minutes. Ivanvector (talk) 22:45, 5 May 2013 (UTC)

English accounting is not 'backwards'

From the article:

"In the American system of financial accounting or bookkeeping, an increase (+) to an asset account is a debit. An increase (+) to a liability account is a credit. In the English system, the entries are reversed."

I'm lost here - people in England don't account the opposite from people in America? We all do it the same way the world over, Dr to increase an asset. Have I misunderstood or is this some kind of mistake or I'm misunderstanding the use of the terms "American Accounting" and "English Accounting"... al a 'Dutch Auction' or 'Indian Gifts'? — Preceding unsigned comment added by 83.244.197.164 (talk) 10:59, 16 February 2012 (UTC) an that whatever all written above just confuing and its irrelevent definition and inappropriate...j please define this in manner that should be

This seems to be somebody's misunderstanding or mistake. I have reverted it because the edit was made without citing a reliable source. But even if a reliable source can be found, if hardly anybody in the UK does it backwards, it should not be presented in this article. There are numerous examples of non-standard practices. For example some printed calendars put Sunday to the right of Saturday, but that fringe practice should not be mentioned in the calendar article.Greensburger (talk) 14:05, 16 February 2012 (UTC)
Just to point out, Sunday being put to the right of Saturday is in fact mentioned in the calendar article, at least twice for different reasons. AaronMP84 (talk) 06:14, 27 December 2012 (UTC)
What do you mean backwards? In many countries debits are recorded on the left and credits in the right column. In the middle east where double entry accounting originated, (early trade between China/India and Europe like the silk road) they often do it the other way so you could say it's us that does it backwards.
Which side of the books debits and credits are recorded on is entirely arbitrary. It really makes no difference which way around you do it so long as other people reading your books know. So long as credits go in one column and debits in the other and they have the correct headings in the top it doesn't matter to the figures. All it does is make it harder for someone else to read. Before PCs I found it easy to have only one money column but record credits on one side of the page and debits on the other.
Euc (talk) 14:01, 30 April 2013 (UTC)
I would like to clarify one thing along these lines. This refers to the "traditional" method section (traditional to whom???), where it describes the real, personal and nominal accounts. I am in the U.S. and I did learn the terms real and nominal 30 years ago, only to mean permanent and temporary accounts. As used in this article, I do not see these terms used in the U.S. and I am unfamiliar with them. It states a personal account is a liability or equity account. Then in the chart states that personal accounts increase with debit and decrease with credit. I would indeed interpret this to be "backwards." In fact, I cannot make sense of it. A liability account increases with a credit and decreases with a debit. I am not going to claim the UK is doing it backwards, because it might be the interpretation of this. New students will tend to interpret a liability as a decrease because they think of it as decreasing the value of the company. But like all accounts, the monetary value in that account just represents a balance. In the case of a liability, it represents something that is owed. If you borrow more, you owe more. Hence, the account balance representing the amount owed would be increased. With a credit. So the chart claiming a personal account (liability) increases with debit and decreases with credit certainly sounds backwards to me. If the accounting equation is going to balance, liabilities need to be done the same way as equity. If anyone wants to flip the debit and credit around the other way, that works since they don't in and of themselves mean increase or decrease; however, it does need to be consistent. Liabilities and equity are on the opposite side as assets, and therefore liabilities and equity would need to be the same.
I actually find that method extremely confusing. This is not the first time I have seen this so-called traditional method (again, traditional to whom?) and never understood it. A personal accounts debits who is receiving and credits who is giving? This, first, seems like a total contradiction to the concept that books are kept from the company's point of view. In fact, it was pointed out earlier in the article that a receivable of a customer does not mean it "belongs" to the customer, but rather is an asset on the part of the company representing what a customer owes. To consider that I would credit a personal account because the creditor is the "giver" feels like a contradiction of that - I'm not doing the giver's books. I'm doing my books. My payable does not "belong" to the giver. It's my account and represents what I owe to the creditor. If I pay down a payable, I have to debit that payable account. According to this traditional rule, I'm debiting the receiver? What exactly am I the receiver of? I find this an extremely confusing way to understand debits and credits. In fact, if I did not already know accounting, I can guarantee I would not understand much of anything this whole article is saying, and especially this section.
68.73.96.176 (talk) 05:12, 12 May 2013 (UTC)

Once the penny drops

This article makes something complicated that is really simple. Here is a long winded explanation of the whole thing to help you understand. It actually boils down to two sentences.

An account is a group or set of things. It can be money or sheep and cattle in a farmer's paddock. Accounting means keeping track of things that move around. Money can move from one account to another or one person to another. Sheep or cattle can move from one paddock to another or one farm to another (or onto my diner plate). It's all recorded the same way.

A credit is where something comes from when it moves and a debit is where it ends up. Being omnivorous I rather enjoy debiting my stomach with bits of cattle.

If you put money into the bank, the bank will credit you and debit its own holdings. A statement from the bank will show a credit. Your books are a mirror image of the bank's. You have taken money out of your pocket and put it in the bank so on your books you credit your pocket and debit your bank account. What is a credit on the bank's books is a debit on your books.

If a farmer moves half a dozen sheep from paddock1 to paddock2, then (s)he credits paddock1 and debits paddock2 with half a dozen sheep. That's why it's called double entry accounting. For every credit there must be a debit. A transaction is nothing more than a moving something and is recorded with a credit and a debit.

The idea of assets and liabilities has also been forgotten and adulterated in recent years. If you take out an overdraft from the bank, the bank statement will show a debit balance. Your books will be a mirror image so it will be a credit balance because the bank is where the money came from. If on the other hand you put more money in the bank (debits to the bank) than you have taken out (credits from the bank), the bank's books will show a credit balance but yours will show a debit balance.

An asset is therefore and account with a debit balance and a liability is an account with a credit balance. (Sorry, one sentence because this is all you need to know.)

There are a lot of people, I was once amongst them, that think it's the other way around. That's because they are used to reading bank statements and not keeping their own books.

Think about it. There is no need for negative numbers. Enclosing negative numbers in brackets is equally unnecessary because it is the same as having a minus sign in front of it. The only time you ever need to subtract anything at all is when you find the difference between credits and debits to balance an account.

I know a few top notch highly paid accountants including, two cousins, a sister and couple of friends, who taught me this stuff yet I know of practicing accountants that don't understand this stuff. See if your accountant agrees with the single sentence. If they don't, get a new one.

Euc (talk) 13:46, 30 April 2013 (UTC)

In your comments, you wrote the following: "If you put money into the bank, the bank will credit you and debit its own holdings. A statement from the bank will show a credit. Your books are a mirror image of the bank's. You have taken money out of your pocket and put it in the bank so on your books you credit your pocket and debit your bank account. What is a credit on the bank's books is a debit on your books."
What you wrote in that paragraph is true, but is so poorly stated that it will only confuse a beginner. You failed to distinguish assets and liabilities in the cited paragraph. The reason your books are a mirror image of the bank's books is because your books show an asset, while the bank's books show it as a liability (they owe you the money).
— Greensburger — (continues after insertion below)
You have it the wrong way around. You have to know the balance (credit or debit) before you know if it an asset or liability not the other way around. Euc (talk) 12:11, 1 May 2013 (UTC)
You also wrote: "An asset is therefore an account with a debit balance and a liability is an account with a credit balance."
That is not what those words mean. An asset account can have a debit balance or a credit balance or a zero balance, although it usually has a debit balance. Likewise a liability account can have a debit balance or a credit balance or a zero balance. If you overdraw your bank checking account (the bank's liability) the normal credit balance will become a debit balance. But that does not instantly transform the bank's liability account to an asset account because it now has a debit balance. Yes, the overdraft is the bank's asset because you owe them the money, but the checking account is still a liability account with a debit balance.
Greensburger (talk) 05:52, 1 May 2013 (UTC)
Sorry - but its you that has it the wrong way around. If an account has a credit balance, you have taken more out than you have put in. (Like a bank overdraft.) You therefore owe the account and it thus a liability. A liability is something you are liable for. If it has a debit balance, you have put in more than you have taken out so it owes you. It is thus an asset. I think you need to rethink your definition of an asset or liability.
Most of the confusion comes from calling accounts "asset accounts" or "liability accounts" because that's what you expect them to be rather than what the actually are. Perhaps we could just say "asset accounts" don't necessarily have assets in them and "liability accounts" don't necessarily contain liabilities.
I much prefer to just use "balance sheet accounts" as a general heading for assets and liabilities and "equity" accounts for the other end of the balance sheet like what shareholders own, what the company retains, dividends etc. It works out much easier.
You are counting chickens before they hatch. I thought like you did once before the penny dropped. Once I had the revalation and understood the system (it usually happens over a few seconds) I suddenly realized I had been thinking the wrong way around. Try to be pragmatic instead of dogmatic and the penny might drop for you as well.
When the penny dropped for my cousin, she went from 2 or 3 company tax returns per day to 20. Her boss came in and said, "I wondered when the penny would drop."
Euc (talk) 12:11, 1 May 2013 (UTC)
Asset accounts remain classified as asset accounts regardless of their balance, credit or debit. It's about classifying the accounts in order to convey the nature of the underlying economic entity that each account represents, not communicating actual data about that economic entity's current status that determines the type of an account. The balance is what communicates the current status. An asset account has a debit normal balance, and a credit balance could signify that there is a liability, but the account remains an asset account.
The nature of the underlying economic entity represented by, for example, an accounts receivable account is that of an asset. If it has a credit balance, then the account remains an asset account in nature. It currently has a balance that indicates that a liability has been incurred, but it's nature is unchanged.
You're conflating the information that the account contains with the structural framework that is used to communicate that information. In my previous example, the information that the account contains is that there is a liability. The structural framework, however, is such that the liability is contained in an asset account. This is not a trivial distinction from a normal liability, because the implications of having a liability in an asset account are different from the implications of a normal liability.
This concept is similar to a contra asset account, such as accumulated depreciation. A/D is an asset account with a normal credit balance. It is expected to have a credit balance, and it is also an asset account. It represents not a liability, as you would apparently classify it, but rather a reduction of the value of a related asset. It is in fact an asset, but a negative one.
The structural framework we work with in accounting is not arbitrary. Things are defined the way they are for a reason. It's necessary for someone who wishes to understand accounting principles fully to be able to grasp the nuances, otherwise you only have a rough understanding. I think you should pick that penny back up. You don't have a comprehensive grasp of the concept. AaronMP84 (talk) 10:54, 21 June 2013 (UTC)

Contra account

The refs I have added to this section could have their formatting improved - I did a bare-bones job. D A Patriarche (talk) 03:10, 4 March 2014 (UTC)

I cleaned up your refs. You might already know, but have a look at Template:Cite web for documentation on the citation templates. Ivanvector (talk) 04:12, 4 March 2014 (UTC)

Business transactions

As Greensburger alluded to in an edit summary, I'm having some difficulty with the word "transaction" in the lede section of this article. When I did a rewrite a few months back, transaction was the best word I could come up with for trying to describe that any individual journal entry has to balance (debits = credits). It seems that others' view of the meaning is different from mine, so let's work out what the proper wording should be, shall we?

Here's an example journal entry for a cash sale with VAT, ignoring COGS: (sorry for my bad formatting)

Dr Cr
Cash 1,130
     Sales 1,000
     VAT Payable 130

I see this as a single transaction - I wouldn't record cash for the sale and cash for the tax separately. Greensburger suggested that the word "transaction" is ambiguous, and this could be seen as three transactions, because there are three debit/credit lines in the journal entry. I see the point that it's ambiguous, but then how to clear it up, while also emphasizing that for this one sale, debits must equal credits? I tried just now, but another editor might have a better idea. Ivanvector (talk) 21:54, 29 November 2013 (UTC)

Thankyou for your comments regarding the word "transaction" being ambiguous. This should be explained, but not in the lede paragraph. If a cash receipt is being entered and the computer screen is headed "Cash Receipts", then there is no need to specify the debit to the cash asset account, because any entry on the cash receipts screen will automatically generate a debit to cash and a credit to the specified revenue account (except for reversals). So it is ok to refer to this as one transaction, even though the computer will generate two general ledger entries and two lines will appear on the G/L transactions report. But if a journal entry is keyed consisting of one debit to an asset account and 3 credits to various other asset accounts, then each debit and credit counts as one transaction, both on the list of entered transactions and the G/L transactions report. I am not going to attempt to add this to the article, so I hope you will. Greensburger (talk) 06:20, 3 December 2013 (UTC)

Maybe we do just need to explain this in the article somewhere. I see that other accountancy articles use "transaction" the way that I have used it, and still others use it to refer to the individual entries as transactions. I think the difference is in the sense of business transactions (my usage) versus computer transactions (Greensburger's usage). I could be wrong about this and I'm not quite sure how to fix it. Ivanvector (talk) 15:38, 26 December 2013 (UTC)
[Caveat: I'm not an accountant] I'm with Ivanvector: the "cash sale with VAT" example is one transaction, containing three entries. GnuCash calls this a split transaction—as does Quicken if I remember correctly from using it long, long ago.
I'd (very informally) define the terms as follows:
entry
a single value (either debit or credit) entered into a ledger
transaction
a set of entries representing one thing that happened—you received some money, you spent some money, or you moved some money around within your own books. This is the smallest, most fine-grained "thing" for which debits must equal credits—it's the atomic "unit of work" in a ledger (I guess that means entries are sub-atomic particles :-) ). There are two kinds:
simple
a transaction with exactly one debit entry and exactly one credit entry (I don't know the correct name for these; "simple" is merely my own attempt)
split
a transaction containing multiple entries on either the debit or credit side (or both, but in practice I don't think that happens too often)

Note that:

  • as mentioned, in any given transaction, sum of debits = sum of credits; in a simple transaction, that simplifies to the (exactly two) entries being equal
  • in a spreadsheet (either software or the old-fashioned pen-and-paper kind), a transaction will typically (always?) be entered on one line, with the entries in various columns. In GnuCash (I can't speak for other accounting programs), it will be entered all at once; you can't create an individual entry, but only a set of entries that balances, i.e. a transaction. But in pen-and-paper T accounts, where each account has its own page, you have to tie the entries together using reference numbers, since they're scattered among multiple pages with no intrinsic visual relationship.

As for "computer transactions", well, in a database, transaction is also used to mean an atomic unit of work. It often consists of multiple updates to various tables, but with the property that either all of them happen or none do, even if the machine crashes in the middle. Suppose you had a power failure while you're entering an (accounting) transaction: you wouldn't want the software to have saved the debit on disk but not the credit, so the database arranges that they're either both saved or neither one is—hence a database transaction. Thus, I suspect that the database sense of transaction was derived from the accounting sense as I've described it above—which would in turn bolster my argument for that accounting sense. — Preceding unsigned comment added by Erics (talk • contribs) 14:20, 11 March 2014 (UTC)

Update: According to journal entry, a journal entry is the atomic unit of accounting. If that article is correct, the definition I gave above for transaction actually applies to journal entry; the transaction is the real-world event that led to the entry's being made. So:

transaction
An exchange of value between entities (a sale; a purchase; a lending, borrowing, or paying-back of money; etc.)
journal entry
What one enters into the books to record a transaction. This is (to quote myself above) the "most fine-grained 'thing' for which debits must equal credits". Some journal entries, I suppose, have no corresponding transactions, e.g. some of the ones that merely move money from one account to another within the same set of books

E.g. If you buy a widget, the transaction is the physical exchange of money and widget; the entry is the balanced set of debits and credits by which you record that exchange.

But then, a lot of people use transaction for both things—the exchange of value, and the record of it—on the assumption, I presume, that one can tell from context which was meant.

All that said, I'm sticking with my major point: that journal entries (or, loosely, transactions) have to balance. I don't know the name for the individual debit and credit values which comprise a journal entry (the "sub-atomic particles"), but I'm pretty sure transaction isn't it.

Erics (talk) 21:33, 11 March 2014 (UTC)

Debit cards and Credit cards

The "From the bank's point of view" paragraph doesn't make sense to me. I'd have thought that, from the bank's point of view:

  • When a customer makes a debit-card purchase, the bank:
    • Debits the card-holder's deposit account (A/P—a credit account)
    • Credits either:
      • Assets, if they immediately transmit the money to the merchant, i.e. at a different bank, or
      • An A/P account for the merchant. This could be either the merchant's deposit account with the same bank, or an account specifically for debit-card purchases (e.g. if they batch up interbank payments to save on fees). I have no idea of the details, but they don't affect my argument—it's A/P either way
  • When a customer makes a credit-card purchase, the bank:
    • Debits the card-holder's charge account (A/R—a debit account)
    • Credits Assets or A/P (same as in the debit-card case)

Thus, in both cases, the bank:

  • Debits some account of the card-holder (either reducing an A/P balance or increasing an A/R one)
  • Credits either their own Assets or an A/P account for the merchant

Which means that the terms debit card and credit card have little to do with the bank's accounting; as the section's first paragraph says, they're just marketing terms.

If I'm right about this, the paragraph in question should be either rewritten or deleted.

Erics (talk) 15:07, 11 March 2014 (UTC)

The nomenclature behind "Debit" cards comes from the bank's entries in their ledgers. From the bank's point of view, your deposit account (savings, chequing, etc) is a liability: it's money that they owe you because you've given it to them to hold. When you withdraw money (including using a "debit card") the bank records the transaction as a debit on your account in their ledger. A debit to a liability reduces the amount owing - since you've taken some of your money out (i.e. the bank has paid you) the bank now owes you less money. This is the same entry as withdrawing cash or paying by cheque, which is why the name "check card" is commonly used in the United States.

On the other hand, "Credit" cards refer to the fact that the bank is extending you credit for your purchase, which is not the same usage as "credit" in bookkeeping. The bank pays for your purchase (a book credit from their other assets, for example cash) and debits your credit card account, which is an asset to the bank because it's money that you owe to them - a debit to an asset account increases the amount owed to the holder. When you make a payment to your credit card, the bank records it as a credit to your account (reducing the amount owing).

Confusing, isn't it? Basically, you should not try to think of debits and credits (this article) in terms of the debit and credit cards that banks issue. Ivanvector (talk) 22:37, 17 May 2010 (UTC)

Above was my response a few years ago to a thread which started when someone asked why American "Visa Debit" (and similar) cards can't be processed on Canadian debit card reading machines, which of course led to confusion because really the terms don't have much at all to do with bookkeeping debits and credits. I can't link to the diff because a number of edits were deleted when the talk page was hosting a copyvio'd blurb from a textbook, but you can go have a look on the Archive 1 page if you're interested. I think this is a common example given in introductory accounting classes to introduce students to the idea of debits and credits, but it seems like someone misunderstood my reply and built it into the article, and didn't leave a source. I'm guessing here, but probably credit cards came first, which were a form of the bank extending you credit (just like a loan), and then when bank cards came along the industry needed a different term since the banks aren't extending you credit, you're using your own money, so why not "debit" cards? Of course, in every transaction there is a debit and a credit. Maybe it's best to remove that whole section. As an added bonus, one of the refs provided is dead and the other is YouTube. Ivanvector (talk) 21:10, 11 March 2014 (UTC)
Oh, so one is named for accounting jargon and the other isn't? That is awkward indeed.
Yes, credit cards came first; the first one was invented in 1958. Where I live, debit cards didn't come along till the early 1990s; they couldn't happen until there was the computer technology to let stores do transactions against customers' bank accounts in real time. (Before that, credit-card transactions were paper-based. Remember the old-style mechanical imprinters, and the three-copy carbon-paper slips that worked with them? It could take days for a purchase to show up on your account (or occasionally weeks, if the merchant took his time about submitting said charge slips to the bank.)
I think you're probably right about "need[ing] a different term...so why not 'debit' cards?"
It would be good to leave something, rather than deleting the whole section, if only to say, as you did in the your quoted text, don't try to understand accounting debits and credits in terms of the cards, with just enough more to explain why. Erics (talk) 22:38, 11 March 2014 (UTC)

Question

april 2 macabeo invested 300,000 worth of supplies. what are the debit and credit?

This is not a discussion forum. More information would be required to answer your question, but you should ask it somewhere appropriate. Ivanvector (talk) 14:22, 29 May 2014 (UTC)

RS for "Dr. is from debere" theory?

Is there any reliable source for the "Dr. is from debere" theory? Presently, the only reference is a Wordpress.com blog which is not a WP:RS. 71.174.67.164 (talk) 15:01, 8 September 2014 (UTC)

Sherman

Regarding these edits, and related to the thread directly above this one.

I'm wary of the source used for these edits, or at least the way that it's being presented in this article. Pacioli's Summa clearly did use Venetian forms of "debit" and "credit" in the original. A translated and very well footnoted version of the portion on accounting is located here. Pacioli's example double-entry journal (page 2) is introduced by: "Quanto alor debito e anche credito", translated as "whenever there is a debit entry there is also a credit entry" in this version. The example entry also describes the accounts as "to:" for the debited account and "by:" for the credit (in the sense of "owed to x by y). I feel that either Sherman is being misrepresented, or Sherman is mistaken.

In any case, I agree that a better source is needed for Pacioli than the Wordpress one (which I'm pretty sure I added). I'll look around. Ivanvector (talk) 15:40, 5 June 2015 (UTC)

The linked PDF has a great flaw, the translator switched To and By in the journal entries see for example here and scroll further on to the section about posting journal entries on page 44. In fact journal entries are still formed this way with the corresponding translations in German (often excluding the Per/by and maybe also substituting the To/A with a slash when written) and I quite wonder why this fell out of use in English and they’re still having to say debit and credit when all can be done by just a one word seperator, because everyone knows that the debit entries come first. Frakturfreak (talk) 00:46, 24 January 2016 (UTC)

Debits and credits the wrong way round?

After the extended accounting equation we have the following:

In this form increases to the amount of accounts on the RHS of the equation are recorded as debits and decreases as credits. Conversely for accounts on the LHS, increases to the amount of accounts are recorded as credits to the account and decreases as debits.

However the accounts on the RHS (equity, liabilities, income) are those for which an increase is a credit. The accounts on the LHS (assets and expenses) are those for which an increase is a debit.

This isn't my field but looks like it needs correcting. I'm aware of the possible confusion over debits and credits which is why I'm not fixing it myself. — Preceding unsigned comment added by Imduffy (talk • contribs) 16:06, 3 May 2016 (UTC)

Yes, that does seem to be backwards. I've fixed it. Thanks for the suggestion! Ivanvector 🍁 (talk) 20:10, 3 May 2016 (UTC)
Can anyone tell the logic behind why Debits increase asset, expense and dividend accounts, and why Credits increase liability, stockholders’ equity and revenue accounts (Narrative explanation the better - Its all about visual presentation nowadays, eh 🍁).
Why are expenses considered as a profit, is it because it decreases the shareholders' equity...what is the business logic behind it...how is business defined then ?

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Under terminology: "because the bank holds money which legally belongs to the depositor"

A prevalent and faintly sinister misconception. Not even the fractional reserves of a bank belong to the banks debtors, save if it should go bankrupt and be dissolved. Is this not common sense that if I should borrow money, I and not the creditor becomes the legal owner of money. — Preceding unsigned comment added by Rayner-hills (talk • contribs) 16:45, 16 February 2019 (UTC)

Yes, that was sloppy wording on my part. I changed it to simply that the bank legally owes the money. I also added a citation because there was a complaint about no citations.KevinBTheobald (talk) 05:09, 10 March 2020 (UTC)

Debits and credits - a way keep debits and credits straight.

Every transaction passes value between two parties. If a supplier sends our company 30 widgets on credit, the supplier as the source of value has his account credited. The company's widget account is debited as the destination/receiver of widgets (value). If later the company pays cash to the supplier in payment, it passes value to the supplier in that transaction. The source/giver of value in the transaction is credited and so the company's cash a/c is credited with the payment. The destination/receiver of the value is debited and so the supplier's account is debited. Imagine an arrow lying across the accounts from right to left, from credit to debit. The arrow points from the source to the destination of the value passed in the transaction. (Of course the debit and credit will be entered in different accounts, e.g., credit to cash and debit to the person paid, or credit to supplier and debit to widget a/c.) 

                      Debit            |     Credit
                      _________________|____________
                                       |
                                       | 
                 destination  <------value---------<< source 
                                       |
                                       |

Stikko (talk) 13:29, 8 October 2021 (UTC)
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