Why is a debit a positive?
submitted by Jez

Ramjam

This is one of the most common questions among first year accounting students. Banks have made this issue more confusing than it needs to be.

When the bank gives you a credit, you get more money. Based on that transaction, it would appear that credit = positive, when in fact the opposite is true. The reason why the bank calls it a credit is because it is a credit on the bank's books. They just reduced the amount of money in their account, and thus credit = negative. But because your account increased, it's actually a debit in your books.

That's just one more way you can see that the bank is thinking about their own profit--not yours.

muhammad s

It's positive because it increases the cash account.

shiela

It is positive because debit increase the assets while decreasing the liabilities and owner's equity.

Raymond

There is no way possible that debt can be a positive move, nor an asset. Debt basically gives the person in debt a false sense of independence by buying things that you really can not afford, it's a scam.

S.Connery

Raymond,

The question is about "debit," rather than "debt."

Shashidhar AM

From the point of view of your own bank account, debit is positive and credit is negative.

Andrea

Debit means an increase. Money coming in that belongs to a person.

Mark Rumsfield

I read in a dictionary that a synonym of debit is disadvantage. So by this definitaion, I think it has a negative connotation. But that's philosphy, not accounting.

MESUSHI :P

A debit is an amount someone owes, and a credit is an amount owed back to someone.

Tamba K David Jr

Debit is positive because it increases the banker's account and reduces the client's account.

pterosaur's

Can anyone give a clear answer

Mau

Shiela,


No you're wrong if asset increases, and Liabilities decreases, the owners equity will increase not decrease, cause based on accounting formula the equity is equal to asset less liabilities.

For example: 15,000 (Asset) - 5,000 (Liabilities) = 10,000 (Owners Equity)

... so then it means when your liabilities decreases, owner's equity will increase.

Ty Malone

Because it is money coming in.

justmyopinion

The answer to this question changes a bit based on whether we are talking about accounting for a single entity versus trying to understand these 'accounting' terms and signs with regards to your bank account. For a bank account owner, you think of things from your perspective, and translate the accounting terms accordingly. You think of a credit as a increase to your account.
That is done by the bank to make it easier for you. However, the bank's 'accounting' of that transaction is quite different. An increase to you is a decrease to them and so on. In accounting, a 'credit' with a normal balance is stored as a negative - credit accouts are: a) balance sheet accounts of Liablities and Equities and b) P&L Revenue accounts. Asset account and Expense accounts are normally debit balances, and debits are stored as positive in most accounting. I know is seems odd - Revenue stored as negative and expenses stored as negative, but that is how it is done. You can't use your bank statemennt, and terms on it, to understand the underlying bank's accounting.

LowQualityAnswers

I am amazed at how low quality the answers have been to this question.

The words Debit and Credit are used in two different ways. 1st, the common person's non-ledger definition, and 2nd, the accountant's ledger definition. These two definitions sometimes mean exactly the opposite thing. So be careful.

1st, the common person's non-ledger definition. A credit is when you receive something of value. A debit is when you lose something of value. So a credit could be an increase to your savings account balance, or a decrease to your credit card balance. Non-accountants typically use the words in this way. Example 1: I gave the bank $5 and they credited my account; then I withdrew $10 and they debited my account. Example 2: I returned a shirt at the store and they gave me a credit.

2nd, the accountant's ledger definition (this is the short definition). Debits increase the following accounts: asset, expense, dividends paid. Credits increase the following accounts: liability, revenue, shareholder equity. Anything that a credit increases, a debit will decrease. Anything that a debit increases, a credit will decrease.

In definition 2, neither credits nor debits are strictly good or bad. Both debits and credits can be good; for example, when a customer pays a business $10 for a service, the business will debit cash (an asset account) by $10 and credit revenue by $10. receiving cash is good and recording revenue is also good. So the debit and the credit are two sides of the same good transaction.

On the other hand, when a business pays taxes, they give cash to the government (credit cash) and they record it as a tax expense (debit tax expense). Reducing cash is bad, and having taxes is bad. So both the debit and credit are two sides of the same bad transaction.

The longer version of definition 2 is based on the fundamental equation of accounting:
Assets = Liabilities + Equity
A debit is when you add something to the left side or remove it from the right side of that equation. A credit is when you increase the left side or decrease the right side.

What about revenue and expense? Because this year's equity is really last year's equity plus revenue less expenses less dividends paid, the fundamental accounting equation can be exanded to
assets = liabilities + lastyr_equity + revenue - expense - dividends
or
assets + expense + dividends = liabilities + lastYr_equity + revenue.
Again, debits increase the left side of the expanded accountant's equation, and credits increase the right side.

joko thedodo

the common sense meaning of debit/credit has been hijacked by accounting.
Accounting should create/invent its own terms.

Handsome Shin

It's easy, Example: Mang Kulas bought 5 pesos of candy, what is debited in Mang Kulas? It's the candy, so? It's Positive or it increased, but what is credited in Mang Kulas? It's The Cash or the Money he spent on buying that Candy so it's Negative or decrease in Mang Kulas account...... But when you put it in a double entry basis: debit, Candy 5 pesos: credit, Cash 5 pesos,.......... You don't need to put a negative sign on a credit basis, it's not right


Okay? It's very simple

Bobo

It's why I hate accounting.

Dan

LowQualityAnswers -- Your answer is perfectly stated. Many thanks for putting into words what I was trying to wrap my brain around.

G Smith

It's really just a convention. In accounting, a debit increases an asset account (such as cash), so it makes sense to represent that with a positive number. And a credit reduces an asset (or increases a liability), so it makes sense to represent that with a negative number.

A lot of confusion comes from the fact that from a BANK's perspective, your cash/checking account is a LIABILITY for them (it's money they owe you), so when they credit your account, that increases your account balance. They also reverse the signs when they show the numbers on your bank statement just because from YOUR perspective it makes a lot more sense if a positive number increases your account balance.

However, internally an accounting system considers all numbers to be either debits or credits, and it really does not matter whether debits are represented as positive numbers or negative numbers as long as they are used consistently. So it really is just a convention that debits are normally represented as positive numbers.

Q Below

Because debit is not a negative.

Seriously though, double-entry accounting was originally documented in a world without arithmetic signs!

But double-entry accounting created a system of "opposites". The ENTITY was a debtor (held wealth) which was owed to creditors.

So terms were created to reflect the "opposition" within an ENTITY that managed wealth/assets. Every nickel of wealth creates a simultaneous obligation to repay it in the future. Hence, the "net worth" of any ENTITY is always ZERO.

That ZERO world used two opposing terms which null out as a couplet--debit and credit. Every transaction and resulting Balance Sheets nulls out to ZERO, because DR and CR are opposites.

Want to modernize them? Debit becomes positive and credit becomes negative. Always and everywhere. The accounting world of ZERO is a constant, because the ENTITY must report to whom any wealth/assets accumulated are ultimately owed. It must reflect its own "net worth" as a perpetual ZERO.

Robert Bullard

One of the comments/statements here indicates that this question is one of the ones most often asked by Accounting students.

Well, I am NOT an accounting student I am over 62yrs of age and I have the same question, over and over and over again!

It seems to me that as a non-accounting student, just a regular Joe that has a banking account and makes deposits into that account and makes payments from that account, I have a first person actual view of how my money is represented to me.

When I have a positive balance in my account I have money in hand. If I have a negative balance in my account, then I have over extended myself and need to make sure I take care of getting that negative value taken care of!

I am not a banker or an accountant or an accounting student, I am an everyday financial user. I access my bank to see my account on a daily basis, if not tens of times a day !

So, in my banking account, a negative means bad to me and positive means good!

When I check an account I have, say with a utility company, to check if I owe anything, when I see negative, in my financial consumer user logic it means something bad, it means I owe something!

So, when an account like the one from the utility company shows a negative number, I get flummoxed! Sure I figure it out after asking myself do I really owe something or is that negative a good thing! I do it every time even though I have read about banks and how negative means something different to them than it does to me, only not if I use reverse logic and pretend I am a banker with a balance sheet or an accounting student, then it means negative is good and positive is bad, or is that negative bad and the positive is good? See, I'm confused and its confusing all over again!!

My question in an effort to help avoid this confusion and question about negative and positive is why can't the utility companies put as an info text box which comes up on my computer screen when my cursor hovers over the negative account balance amount, why can't it reinforce to me something like text that says " ...... A negative amount is more than likely a CREDIT in this account. If this is NOT what your own records indicate, then please contact the accounting department for clarification and resolve any potential issue (e.g., perhaps a payment was missed, or a payment was counted more than once)."

I'm not asking bankers or accounting students to unlearn how their debit and credit works or what that meaning is to them from a financial perspective. I am just saying that we "normal" users of the financial system need some reinforcement that negative is bad and positive is good and if that is NOT what is intended by the minus in front of my account balance then please proceed to give me a reminder on your web page through the use of a text box! Please help us mere mortals to avoid being confused!

Thanks. Much appreciated. Carry on Accounting101!