5 Mar 2016

Hopefully This Will Answer That Nagging Question

After a discussion I had with a client yesterday I thought it was about time it was answered for all of you because it seems like this question keeps coming up time and time again.

The question was - "Why do you enter a deposit I make into my bank account as a Debit when I fill out a Credit slip to make the deposit?"

It's a really cool question because double entry accounting principles terms like "debit" and "credit" are hard enough to understand at the best of time, but when you use one term as a way to create another term it can be most confusing.

Ok, so let me explain it in "English" and - just so you know I'm ready for it - I know that all the Accountants reading this are probably going to shudder at my explanation but I don't care - in all the years I have been involved in the banking and finance sector (and I started in this sector in 1979, so I've got a bit of "time up"!!!) I have always found this to be the easiest way to explain this concept to all us "normal" people!!! LOL

In very broad terms a Debit entry is an increase in a financial line item and a Credit entry is a decrease in a financial line item.

Now, when you go to the bank to make a deposit what do you do?

You take money out of your pocket, or wallet, or cash bag, or whatever (i.e. decrease the amount of money you have on your person) and put this money into your bank account (i.e. increase the amount of money in your bank account).

So - if you look at it this way - doesn't it make sense to complete a Credit slip to decrease the amount of money you have on you and doesn't it make sense that it is a Debit transaction on your bank account because it has increased the amount of money in your bank account?

I hope this explanation clears up this question for you and if you have similar questions, why not join us inside the XLerator Community because we are always there to help you out with this kind of thing. 

No comments:

Post a comment