Dear Professor Cram:
I am having trouble with journal entries. I know I am supposed to first make the debit entry and then make the credit entry. I keep getting confused by whether the debits and credits are increasing or decreasing the accounts. Why don't debits always decrease an account? Please just tell me exactly what is a debit and a credit? Why is this so confusing? I need to get this sorted out in my head.
John W., NY
Thank you for your interest in College-Cram.com and thanks for your question.
Your question about debits and credits is not unusual. A lot of people are confused by these terms. Part of this comes from the terms being used so widely but from different perspectives and for different purposes. As an accounting student, you don't have to worry about what the banker meant by "crediting your account" which makes sense from the bankers accounting system but not yours. What you need to remember is the accounting secret: Debit and Credit only refers to which side of a two column ledger the number appears on – left or right.
There was a highly respected accountant who came into his office every morning and after he got his coffee, sharpened his pencil, and got files arranged to use them, he unlocked and opened the center drawer of his desk, peered inside for just a moment, and then locked it back and began his work for the day. He did this for forty years. Same thing, every morning. People observed him doing this over the years, but no one ever asked him about it. There was quite a bit of speculation, but since he always kept the drawer locked, no one had been able to sneak a peek. At his retirement party, one of his friends couldn't resist asking him just what that daily ritual was about. He went to his desk, unlocked the center drawer, and removed a worn, faded, index card. It said "Debits on the left. Credits on the right."
That is all a debit or a credit amounts to. Debits go on the left and credits go on the right. You are right that these affect different accounts differently.
Remember, debits on the left and credits on the right,