Every accountant has to deal with debits and credits; after all, they are the life-blood of the accounting system. But what happens when we don’t know what account to credit? Or what if we don’t know if it should be credit instead of a debit? It’s questions like these that lead most accountants to drink (that and question why they chose accounting as their profession).
In order to save a few accountants from alcoholism I am dedicating this edition of “Ask the Accountant” solely to debits and/or credits. Enjoy!
What is a debit?
A debit is one of the cornerstone of the modern accounting system and has been described over the years as a sick joke.
What is a credit?
Something you get from your boss when you steal a coworker’s idea.
What do I do if I’m confused as to what account I should debit and what account I should credit?
Start drinking. If that’s not an option then, in these types of situations, I find it best to take a deep breath, think about the transaction you are trying to record and then start drinking.
I’ve noticed that the abbreviation for debit is “DR”, why is that?
Great question! There have been many theories around why this abbreviation was chosen given that the letter “R” doesn’t appear in the word debit. In the fall of 2013 the bored (yes I meant to spell it that way) of accountancy held an emergency meeting and in the wee hours of the night (they had drank a lot of coffee, which explains the wee) published a pronouncement (FASB 420 ( W ) (E) (A) (R) (E) (R) (E) (A) (L) (L) (Y) (B) (O) (R) (E) (D)) that declared that they had no idea why it is abbreviated that way.
What happens if I accidentally credit an account instead of debit it?
This is something that you want to avoid at all costs. In the event that it does happen you will be set upon by dozens of auditors, each of whom will ask you the same question dozens of times until you confess that you not only messed up but will also confess to sneaking out of your house as a teenager, liking Miley Cyrus and being the second shooter in the JFK assassination; and this is just the start. After enduring this for months and being pushed to the brink of jumping off of a bridge they will then declare that the error is immaterial and nothing needs to be done. Cruel and heartless folks they are.
Can you explain the difference between a debit and a credit?
Ahh…this is an easy one! A debit is a positive number and a credit is a negative number. Or vise-versa.
I’m not sure that cleared anything up.
I’m not sure that I care.
Do debits always have to equal credits?
When you are taught accounting in school one of the first things that you learn is that when doing a journal entry your debits must equal your credits. In the real world, however, nobody knows the difference between the two and if your debits don’t equal your credits you can just throw the rest to petty cash or, if your company is really sophisticated, you can put into a slush fund.
Having read your previous “Ask the Accountant” posts I get the feeling that you don’t know what you are talking about. Am I right in feeling this way?
I’ve been asked this question in various forms and am becoming increasingly offended by it. To answer your question though, I get that feeling too.
I’m new to accounting and I’ve always wondered why there is a need to have both debits and credits. Wouldn’t it be simpler if you could just choose one or the other (I’m partial to debits by the way)?
I’m partial to debits as well, however, due to the double-sided entry system that has been used for centuries, it is impossible to just use one or the other unless you work for Apple; they use iAccounting which allows their accountants to perform their job by pushing the single button on their computers which then places a number (either a 1 or 0) in the journal entry as either an iDebit or iCredit. On a side note, I hear that they are about to release iAccountant 2 which, it is rumored, will get rid of accounting all together. I wonder if they are hiring…