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Author Topic: nit picky accountant has probably insignificant critique of client terminology..  (Read 2170 times)
LH66
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May 02, 2011, 03:59:40 AM
 #1

It's quite possible that this is not really all that important, but I just thought I'd share a quick observation about the client....

I notice that it refers to additions as "credits". This is not correct. Anything that increases an asset (checking account, savings account, investment accont, inventory, securities, car purchase, home purchase, etc) is a debit. Decreases to assets are credits.

If needed I can explain why. But that's the correct terminology from an accounting standpoint.

Just my .02BTC.

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Garrett Burgwardt
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May 02, 2011, 04:05:44 AM
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Hmm, I think that's probably just how the client does it because most people think about it that way, though that is good to know. Perhaps a simple fork of the client with correct accounting terminology can be made if it's that bothersom Tongue
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May 02, 2011, 07:35:39 AM
 #3

Additions are debits from a bank's point of view, but credits from a customer's point of view.
LH66
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May 02, 2011, 04:23:13 PM
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Additions are debits from a bank's point of view, but credits from a customer's point of view.

The reason for the confusion is that it's double entry accounting (each trans has two sides, a debit and a credit) plus we're talking about two different entities, a bank and an individual. So two transactions that each have two sides = confusion!  Tongue

Rule of thumb: when discussing debits and credits, entities are mirrors of one another. As a simple example: when I send an invoice to somebody, it's a credit to my Accounts Payable account and a debit to an expense account, but it's a debit to their Accounts Receivable account and a credit to their sales account. The transactions mirror each other. I call this "the mirror principle" and I honestly believe I thought of this myself. I've never read it in any book or website, but it holds true for every single accounting transaction between two entities.

If I hand somebody cash, it's a credit to my "petty cash" because I've lowered the balance on my books, but on that person's books it's a debit to "petty cash" because their cash balance has been raised.

So back to the bank example: bank statements call withdrawals debits because from their pov it IS a debit.... when they hold money for you, it's a liability to them since they owe you that money, they're holding it on your behalf. When you withdraw some, they no longer owe you that amount, so they debit the liability account that has your name on it. It now has a lower balance that it did before. Same for when you add money, they call it a credit because they now hold more money on your behalf... the liability balance has been raised, so it's a credit on their books.

.... but on your books it's a debit because your cash balance is raised. Remember the mirror!

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May 02, 2011, 04:37:53 PM
 #5

That is utterly confusing. I got it, at least on second reading, but I imagine many people will be utterly baffled.

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LH66
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May 02, 2011, 04:48:55 PM
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That is utterly confusing. I got it, at least on second reading, but I imagine many people will be utterly baffled.

It's counterintuitive... people are so used to seeing their bank statements say debit for withdrawal and credit for addition, and they don't realize that this is an accounting of the bank's ledger, not their own ledger. Like I said initially, it may not really be that important. If I was in charge of the client terminology, I'd call additions "Additions" and withdrawals "Withdrawals" or "Subtractions." But that's just me.  Cheesy

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SgtSpike
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May 02, 2011, 05:05:30 PM
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That is utterly confusing. I got it, at least on second reading, but I imagine many people will be utterly baffled.
This is why not many people are accountants.  Wink

LH66 is 100% right on this, though the terms are thrown around incorrectly so much that it doesn't really matter.  When someone says "I'll credit your account for this return", everyone knows that they are getting money back, even though the terminology says it should technically be the seller saying they will debit the person's account.
NghtRppr
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May 02, 2011, 06:58:17 PM
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It doesn't make sense to say that the majority of people are using a word incorrectly because usage defines meaning. "Credit" means "to add money to an account" and "debit" means "to take money from an account". Why? Because that's how the majority of people use the words. Let's stop fighting naturally evolving language and get on with our lives.
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May 02, 2011, 07:09:43 PM
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It doesn't make sense to say that the majority of people are using a word incorrectly because usage defines meaning. "Credit" means "to add money to an account" and debit means "to take money from an account". Why? Because that's how the majority of people use the words. Let's stop fighting naturally evolving language and get on with our lives.
so my creditors owe ME money. Sweet, I'm all set then Cheesy

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NghtRppr
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May 02, 2011, 07:41:35 PM
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It doesn't make sense to say that the majority of people are using a word incorrectly because usage defines meaning. "Credit" means "to add money to an account" and debit means "to take money from an account". Why? Because that's how the majority of people use the words. Let's stop fighting naturally evolving language and get on with our lives.
so my creditors owe ME money. Sweet, I'm all set then Cheesy

Since your creditors have credited you money, I think it's the other way around.
deadlizard
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May 02, 2011, 08:02:05 PM
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It doesn't make sense to say that the majority of people are using a word incorrectly because usage defines meaning. "Credit" means "to add money to an account" and debit means "to take money from an account". Why? Because that's how the majority of people use the words. Let's stop fighting naturally evolving language and get on with our lives.
so my creditors owe ME money. Sweet, I'm all set then Cheesy

Since your creditors have credited you money, I think it's the other way around.
that means it's on my books as a debit. let's not fight the evolving language now Tongue

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Ian Maxwell
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May 03, 2011, 02:50:37 AM
 #12

Hm, this seems odd---I thought a credit was a balance increase on an expense or asset account, or a balance decrease on an income or liability account, so that (for example) buying lunch with a credit card is a debit to the credit card (liability) and a credit to, say, my dining account (expense). I'd think of bitcoins as an asset, so that an increase in balance should be a credit. It's a debit from somewhere, sure---in my case, usually "mining", an income account.

Is Gnucash using the terminology backward?

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LH66
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May 03, 2011, 03:26:08 AM
 #13

Hm, this seems odd---I thought a credit was a balance increase on an expense or asset account, or a balance decrease on an income or liability account, so that (for example) buying lunch with a credit card is a debit to the credit card (liability) and a credit to, say, my dining account (expense). I'd think of bitcoins as an asset, so that an increase in balance should be a credit. It's a debit from somewhere, sure---in my case, usually "mining", an income account.

Is Gnucash using the terminology backward?

A credit card balance, alone, is a "credit" balance.

When buying lunch with your credit card:

Debit the Meals & Entertainment expense account
Credit the credit card liability account

When you make a payment to the credit card account:

Debit the credit card liability account for the amount of the payment
Credit the checking account for the amount of the payment

Increases to income are always credits. The corresponding entry is a debit, usually to either cash or accounts receivable.


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