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Understanding Debits and Credits

I hear and I forget. I see and I remember. I do and I understand.—Chinese Proverb

Double-entry accounting was invented long before computers came along.  Along with double-entry accounting came a new vocabulary; the most common terms of which are debits and credits.  For those of you who have formally studied accounting the following section may be a review from a different perspective.  Formal accounting is not necessary for the use of most accounting programs, but a working understanding of whether an entry for a transaction should be a debit or credit will reduce the confusion of entering transactions.  As you work with your accounting program you will become more familiar with how it operates and begin to think in terms of debits and credits.

The first thing one needs to do when learning about debits and credits is to concentrate on the accounting definition for debit and credit and forget any other connections for a second.  For instance, a debit is not a debt, though they both were derived from the same Latin root.  Credit, as it is used for lending, comes closer to having the same meaning, but it isn't exact.  To make debits and credits easier to understand, please forget these meanings and concentrate on the accounting meanings only.

Debit:	An	increase	to an	asset or expense	account,
or	a	decrease	to a	liability, equity, or income	account.
Credit:	An	increase	to a	liability, equity, or income	account,
or	a	decrease	to an	assets or expense	account.

A General Model of Debits and Credits can be printed and associated with any accounting program  to help visualize the impact of transactions as it pertains to Debits and Credits.

An example!