 Hello, in this presentation we will discuss the discussion question of why are debits on the left and credits on the right? Could this be reversed? This essay question could just be phrased, what are debits and credits? And in describing this answer to what are debits and credits, we may want to get into the detail or it would help for us to get into the detail of what does it mean for a debit to be on the left and a credit on the right? Why is this the case? How did this come to be? Could it be reversed? Is there another way that this kind of thing could work? And in order to answer that question, first we probably want to start with the definition of what debits and credits are. And again, it's a bit of a definition that many people are kind of like disappointed in when they first hear the definition or almost don't believe the simplicity of the definition, meaning the debits are just on the left and the credits are just something on the right, meaning if we have a T account, we have a T account, a giant T, then the debits are the items that are going to be recorded on the left of the giant T and the credits are going to be the items recorded on the right of the giant T. That's really the only definition there is to debits and credits. And again, because of the way that people have thought of debits and credits and because of the use of terms like debit cards and credit cards and the use of terms like credits by banks and whatnot, the idea of debits and credits has gone way past that, meaning we could in other contexts of the world, even the financial world of even the accounting world, we could argue that there are different definitions of debits and credits, meaning when you're recording financial transactions, it may just mean debits on the left and credits on the right. But when talking about credit cards and talking to the bank, they may, at this point, have a different definition of what debits and credits are. Note, however, that all of the origins of the definitions can be traced to just basically the financial accounting definition of the left and right-hand side of the ledger. Now, that's really all you want to say in order to basically be technically correct what a debit and credit is. Debit just means something's on the left-hand side of the ledger. Credit means it's on the right-hand side of the ledger. But that doesn't give us a really good idea of what debits and credits are or how they're going to be used, but it does give us that technical definition. In order to go a bit further, we can try to say, well, what do debits and credits do to particular accounts? When we debit something on the left-hand side of a ledger, what does it do? When we credit something on the right-hand side of a ledger, what does it do? And it really depends, of course, on which type of account we are dealing with. And so in order to understand that, we got to first understand how the board is set up. We got to understand which accounts are on the debit and credit side. And you got to basically just memorize that. So we know that if we were to see that, if we were to see that assets have a debit normal balance and liabilities have a credit normal balance and equity has a credit normal balance and revenue has a credit normal balance and expenses have a debit normal balance, then we can just basically apply the rule of the left and right side of a ledger and we can see what these things do to a particular account, for example, for talking about an asset account. Then if we debit something, if we do something to the left side of a ledger, we're going to do something which is the same as its normal balance, which will make it to go up. And if it's an asset account, which has a debit normal balance, and we do something to the right side of a ledger, something to the opposite side of the ledger as its normal balance, it will make it to go down. The reverse is true for a liability. If it's a liability, which has a normal credit balance on the left on the right side of a ledger, and we debit it, we're doing the opposite thing to it, which will make it to go down. If it's a liability account, which has a normal credit balance and we and we credit it, we're doing the same thing to it, making it to go up. So if we just kind of observe the effect of what debits and credits do to particular accounts, meaning assets, liabilities, equity and expenses, we could add to our definition basically the effects of putting something on the left-hand side or the right-hand side of a ledger debiting or crediting a ledger based on the type of accounts that we are debiting and crediting, meaning we can describe what is happening to cash when we debit or credit cash. We can describe what is happening to liabilities when we debit or credit liabilities. If we think more about that, we can say, well, why is that happening? Why are these accounts going up or down? It's just really arbitrary. It's really just according to a set of rules that we've made. If we're just setting the accounts up in normal balances in accordance with a set of rules, and then we're making the rule that they're going to go up with a debit or credit, meaning assets are going to go up with a debit, go down with a credit, liabilities are going to go up with a credit, go down with a debit, that's just in accordance with the way the board is set up. And we can think about that just like if we set up a chess board or something like that, that once you set the chess board up, then the pieces have to be moved in accordance with a certain set of rules. So if we're going to move a piece, it's got to move one way. If we got a particular piece, we have to move it that particular way. Why? That's just the way the rules are set up. And is there a purpose to the rules? Well, the rules have to be there in order for the structure of the game to work. And in the case of a chess game, then they're just there in order to have a structure of a strategic game in place. You have to have those rules. And if you do something in a particular way, if you move something on the chess board, it has to be moved in accordance with those set of rules. Same thing with debits and credits. If you debit an asset account, then it's just going to happen. What happens? Why? Because that's the way we set the board up. Now, we could have the idea, well, I mean chess is just a game. Is it possible that we can set the board up in some other way? For example, if we flipped the entire board, reversed the order of all the board, would that work? Just theoretically? And it probably would. And the same is probably true with the debits and credits, meaning if we reversed all the normal balances, just as a thought experiment to see what debits and credits are, if we were to say that assets normally have a debit balance, if we were to reverse that and say assets have a credit balance, if we were to say that liabilities normal have a credit balance, and we were to reverse that and say assets now are going to have a debit balance, if we were to say that equity normally has a credit balance, we were to reverse that and say that now Now credits have a debit balance. If we were to reverse all of the rules in that way and then apply the debits and credits in the opposite way, meaning we just reverse everything, could that theoretically work? And it could. We could actually run the whole thing basically in opposite. We can reverse all the normal balances. We're not gonna do that. Nobody's gonna do that because we've standardized the definition of debits and credits. But by understanding that it's just basically a set of rules and we're moving the debits and credits in accordance with that set of rules, it can kind of give us an understanding of what debits and credits are. If we were to reverse everything, then it could still work. It's just that everything would be reversed and the assets then would have a credit balance and in order to make it go up, we would do the same thing, which is a credit and that's how that would be formatted. So the bottom line then is that wire debits on the left and the credits on the right, it's just a convention. That's the convention that we put into place. It's a convention that has a purpose and has a meaning. We're putting together a game and that game is gonna be our major check, our major internal control against making errors. Does that mean, however, that we couldn't set the board up in some other way, set up the game, for example, to reverse the entire thing and have it still work, meaning still have that check, that internal control, helping us safeguard against making errors, it's possible we could set up the game in a different way. Why don't we do that? Why doesn't anybody do that? Because we've now internalized the idea of debits and credits, just like we've internalized the way a chessboard is set up or a checkerboard is set up as the universal way that it will be set up so that there's standardization so that we can go somewhere and say, how are you gonna do the debits and credits the way everybody does a debits and credit? How do you set up the checkerboard? That's the way everybody sets it up. How do you set up the chessboard? It's standardized, that's the way we're gonna do it. If you were to change it, is it possible to change it and still have a working game, have something that in this case could still give us the benefits of debits and credits? It is possible to do that, but nobody's gonna do that in normal practice because we're trying to standardize because there's benefits to standardization. So the most basic question of an essay question that can be asked in terms of debits and credits is just, what are debits and credits? If you're asked, what are debits and credits? To get the bare minimum answer, you're just gonna say the debits are on the left and the credits are on the right. You're not gonna get into anything. Well, the bank means that the credits are increasing in your account or anything, like meaning, you're not gonna put any meaning to debits and credits like that debits make something always go up or that they're always good or credits are always good. Nothing like that, no inherent meaning in debits and credits, they have no inherent meaning. The most basic answer is just debits are on the left, credits are on the right. If you want more detail than that, then you could list out what debits and credits do to particular accounts, meaning, if I was to debit an asset account, what would be the effect? If I was to credit an asset account, what would be the effect? If I was to debit an liability account, what would be the effect? If I was to credit a liability account, what would be the effect? and so on through equity, revenue, expenses. If you wanted to, it's very rare that you'd get an essay question that you would really wanna go to in depth in terms of other types of formats if we flipped everything around in terms of debits and credits, but conceptually that'll just give you an idea of really the idea that we're just really talking about the convention of a board, just like we're talking about the convention of a board in terms of chess pieces. So it is possible for us to set things up in a different way, we're in a convention right now and we're gonna stick to that convention pretty much universally.