Too many people appear to be caught up with the *terminology* of debit and
credit, as opposed to the *principles*. The origins of the term is
pretty interesting, but it doesn't really reflect the principles of modern
double-entry bookkeeping.
Physics students don't let the peculiarities of the terms "positive" or
"negative" get in their way of understanding electricity (considering the flow
of electrons, it's arguably more logical to call it the other way around, but
it's much too late to change now). You shouldn't let ancient terms get in
the way of understanding accounting, either.
Having said that, what I heard once is that "credit" referred to the trust
lenders have conferred upon you to pay back your debts. ("Credit" comes from
the Latin word "credere," which is "to trust in"; I conjecture that "credit"
was originally used in the sense of "he trusted [me].") Hence loans, notes,
bonds, and accounts payable are all credit accounts. So is equity.
Conversely, "debit" was originally the tangible manifestation taken up by your
debt; that is, debit accounts are the actual things that you borrowed, or
what you got in exchange for the things that you borrowed. You borrow cash
from Mr. Shylock, so cash is a debit account. And what did you spend it for?
Umm...laptops. Yeah, laptops. Laptops are fixed assets, so that's a debit
account as well. The same would be true if you had spent it in Las Vegas,
which would be expenses; hence expenses are debit as well. Ditto if you
were smart and put it in a bank account instead. Hence checking accounts are
assets as well.
Clearly both credit and debit have outgrown their original meanings. Income
is a credit account, but it's hard to argue that your employer is trusting
you with any money when they pay you. Accounts receivable is an asset as
well, but it isn't clear how that is a manifestation of your debt. Like I said,
don't worry too much about the words themselves; it's the concepts that
are important.
Shimpei.
