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0 pointsrahimnathwani3y ago0 comments

"I think we're talking past each other but I'm not sure how to rectify."

Let me give it one last try :)

You're claiming the truth of two propositions:

A) Without the context of the specific accounts being debited or credited the terms [debit and credit] themselves mean nothing.

B) Without the context of the specific accounts being debited or credited we have no way of explaining what the managerial result of that entry is.

I agree with B, but do not agree with A.

When an account is CREDITED, this always represents an increase in liabilities[0] (or equivalently, a decrease in assets).

When an account is DEBITED, this always represents an increase in assets (or equivalently, a decrease in liabilities).

The two statements above are true as written. If you were to exchange the capitalized text (turning CREDITED into DEBITED and vice versa), the statements would no longer be true. Therefore credit and debit each have some distinct meaning.

[0] I treat 'shareholders equity' as being a liability in favour of shareholders

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onefuncman3y ago

> When an account is CREDITED, this always represents an increase in liabilities[0] (or equivalently, a decrease in assets).

> When an account is DEBITED, this always represents an increase in assets (or equivalently, a decrease in liabilities).

This is where you're wrong. You can credit and debit Accounts Payable and Accounts Receivable. If you credit AP, you're increasing liability, if you credit AR, you're increasing assets.

rahimnathwaniOP3y ago

"If you credit AP, you're increasing liability, if you credit AR, you're increasing assets."

This is incorrect. If you credit AR, you're decreasing assets.[0]

[0] https://www.freshbooks.com/hub/accounting/debit-and-credit#:....

jessaustin3y ago

Your link shows that AR is a subaccount of Assets and AP is a subaccount of Liabilities, so credits to each have the opposite effect with respect to a balance sheet. GP has a different understanding of the "polarity" of debits and credits, but if anything this seems to support rather than undermine proposition "A" above?

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jwarden3y ago

rahimnathwani is correct here and has explained himself well. I generally don’t think of equity as a liability, but if you think of it is money owed to shareholders, then a credit can indeed be seen as an increase in money owed. Since debits always equal credits,

money OWNed = money OWed

And thus:

Assets = Liabilities + Equity

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