 Hello in this discussion question. We will discuss the question of why does my definition of credit differ from the books? This is going to be a question that could be asked in an essay format in just defining Debits and credits a question in the terms of define debits and credits in class This is often a question that is asked because many people have different conceptions of what a credit is and therefore when they hear the book definition often a little bit actually disappointed in terms of the length of the definition that is Involved an essay question what you not when you need to be careful of is not to expand on the definition of a credit Beyond what it actually is in terms of financial accounting So there's many reasons why many people have preconceived notions of what a debit and credit is and why we can get the definition of The debits and credits mixed up and we want to be careful of that when we go into the financial accounting just to have the financial terms of Debits and credits because it will help us get an essay question based on debits and credits correct and It's gonna help us to basically make financial transactions If we have some of these preconceived notions of debits and credits It can really be difficult for us to build the transactions based on those preconceived notions Where do these preconceived notions come from? Many people just get an idea of what debits and credits are just from terms out there like a debit card or a credit card Or when talking to a bank when they say they're gonna credit to your account Many people who have who have the most entrenched definitions of debits and credits Which are not exactly what we will be working with in terms of financial accounting are actually those that work in Accounting in many different areas for example if you work with an area in accounting where you work with a bank a lot You might start using the term of credit as basically increasing your account because that's what the bank is Calling a credit and when we hear terms like credit cards and whatnot or we're gonna credit your account and increase your account those are often terms that we will start to use the term credit in Basically a different context than we would in just financial accounting just recording the debits and credits We could Derive the meaning of those words and say well where did those words come from? Let's try to figure out how they actually relate to the origins of the word debit and credit at least in terms of financial accounting Or and or we probably just want to draw a line in our minds and say well There's just different meanings of debits and credits in different contexts I'm not gonna argue with the bank or something on terms of what a credit means in that context I might want to understand I do want to understand what it means in terms of the overall context and maybe How that that term came about and how it came about to be used in different contexts So the definition of debits and credits if we have an essay question of what is a debit and a credit? The simple answer is just gonna be the debits are on the left-hand side of the T account and the credits are on the Right-hand side of the T account and that's really the entire definition It's a bit it's I like I say it's a little underwhelming of what the definition is all credits are all debits are Mean that we're recording transaction on the left side of a T account or a ledger And all the credit means is that we're recording the transaction on the right side of the T account or ledger There's no inherent goodness or badness to credits or debits Neither one of them are inherently good or bad neither one of them inherently mean that we're gonna increase or decrease a particular account Although just because of the way the board is set up Some texts will actually deaf define a debit and credit by which accounts and how they affect which accounts meaning You know debit accounts will increase debit normal balance accounts, which are gonna be assets and expenses Credits will increase normal credit balance accounts liabilities equity and revenue But really that's just a consequence of how the how we set things up It's kind of a consequence of how we set the board up So Then that's basically where you want to stop in terms of what debits and credits are unless they want to expand in terms in terms of why That is the definition of debits and credits in terms of understanding the debits and credits differentiation from What many preconceived notions are We can try to look at the that Where those two things are derived from where do these preconceived notions or where do these uses of debits and credits Come from and how do they relate to the original use of debits and credits? As just the amount recorded on the left hand side of ledger debits and the amounts recorded on the right hand side of the ledger credit Well one area where this is there was a lot of confusion is When we talk about a bank, for example, crediting our account We might go to the bank and say, you know, we need to get this charge reduced from our account We don't think we should be charged for this and if they do it they might say that we're going to credit your account Now when they say that they mean and they mean to you basically that they're going to increase your account And even to the banker, that's really what it means to that particular banker a credit to them means We're increasing your account And to us then we start to say well credit means that it's going to increase our account in this case our checking account which is our bank account and When we get into financial accounting we start to we tell people that the bank account is your Acid account it has a debit balance and in order to increase it you debit it You don't credit it in order to increase it and that could be really Confusing when we're first starting to learn this stuff when we talk to the bank and they say they're going to increase our account With a credit and we say we're going to increase our account with a debit So we could just basically learn the terminology of the bank and say well the bank means something different to the bank than it Does for my books That's one way to kind of deal with that But if we want to know the origins of this we have to think about well Let's think about this from the side of the bank and then let's think about it from the side of our side of the books From the bank side of things if they're increasing our checking account balance That's not a Cash to them that represents a liability to them and liabilities have normal credit balances Therefore when they credit our bank account on their books They're really dealing with a liability. They're increasing a liability account on our side we're looking at the Amount that they're increasing our bank balance by as cash an asset And therefore we're going to increase the book side the the debit side of the ledger So note what happened here is basically we just they started taking this term credit As it's being used in this one particular case And the bank being the major driving force started just calling This increase to the bank account a credit and just that just became kind of a definition So at this point in time the term credit in when used in that context does basically mean it's going to increase our checking account but they the That word was derived of course from the fact that they are increasing a liability account And we are increasing an asset account on our side And that's that's where the difference lies when we record on our side We're not going to record a credit to the to a liability. We're going to record a debit to The asset account So that's going to be one of one of the ways that there's confusion And what's really happening here is when we say that we have debits and credits We're basically saying that these are just kind of spots Just like we would have spots on a checkerboard where we have the red and black squares And the debits and credits are just where we line up the pieces those pieces then being assets liabilities Equity income and expenses lining up either on the debit or credit side Just like we would line up pieces on a chess board We're just lining them up where we're supposed to line them up That's all we're doing in accordance with a set of rules Then we're going to move those pieces around in accordance with a set of rules What's happening here just like if we started to play the game of checkers all the time And people started just naming or giving definitions to the red or black cells And and calling them a certain thing Uh, that's basically what's happening in terms of debits and credits because the bank is always doing this transaction of increasing And decreasing our account They start to define just the place on the board the right side of the t account As something different as being an increase and that's kind of where some of these these terminologies get mixed up So in any case that the if there's an essay question on debits and credits All it means is a debits on the left hand side of the ledger and a credit is on the right hand side of the ledger Any other definition that we have when we go into financial accounting at least we really have to unlearn Difficult thing to do to unlearn things But we have to unlearn it and or separate it in our mind and say hey, this is something Different a different form of the term debit and credit Credit in a different different term in different texts when we Think about it in terms of financial accounting. It's just like a checkerboard It's just blank spots on a checkerboard. They have no meaning other than that nothing good nothing bad Not doesn't mean increase doesn't mean decrease when will it increase or decrease? It just depends on the rules how the board is set up and the rules being that you know We're going to increase account by doing the same thing to it as its normal balance So it just happens to be that we're going to set up the board so that assets have normal debit balances liabilities have normal credit balances equity has normal credit balance revenue has a normal credit balance and Expenses have normal debit balances. That's just the way we set up the board And once we know the board is set up like that We're going to say the same thing to it as its normal balance will increase it The opposite thing to it as its normal balance will decrease it therefore If we want to increase a debit normal balance account like cash like assets We do the same thing to it another debit if we want to increase something that has a normal balance of a credit Like a liability. We're going to do the same thing to it which is a credit So notice that a debit or credit can increase just depends on what the normal balance of the accounts are How do we know what the normal balance of the accounts are? We just have to memorize it Why was it set up that way? Because that was just a system that was set up. Is there another way it could to be set up? Yes, there is that would work but Due to convention we're all we're always going to standardize and set it up the way the convention has been set up to be set up So in conclusion, we're going to say that the definition of debits and credits just means that the Just a blank spot on the board the debits are on the left hand side the credits are on the right hand side No further expansion in terms of the essay question when answering an essay question like that unless it's to explain The a misconceived notions of what debits and credits are