In accounting, debits and credits have particular meanings.
If you have a bankcard you are accustomed to debiting your card when you make a purchase. Likewise you are accustomed to crediting your account by depositing money into the bank or making a payment on your account.
In accounting, this is not the meaning of debit and credits. Everyone gets confused because of a preexisting notion of what the words mean. The important point to remember is:
Debit means left as in the left side of the T-Account.
Simple!
Debits go on the left side.
Credits go on the right side.
Do think of adding or subtracting a balance, putting money in the bank or withdrawing money. Simply put debits on the right and credits on the left.
In preparing journal entries, debits are listed first, then indent a few spaces and enter credits.
Debit---Left!
Credit—Right!
Quiz:
- On which side of the T-Account do you post credits?
- On which side of the T-Account do you post debits?
Answers:
1. Right
2. Left
Do credits and debits mean to add and subtract from the account balances?
No!
At the closing of the accounting period all the debits on the left side of the T-Account are added up. Then all the credits on the right side of the T-Account are added up. The balance of the account is determined by comparing the total debits to the total credits. An account will either have a debit balance or a credit balance.
(Why do accountants complicate this? Accounting actually dates back to Classical Times. So the concept of debits and credits to accounting predates anything your local bank has to say about the matter.)
