Not counterintuitive at all, but rather a matter of perspective.
You might be familiar with a bank 'crediting your account' which
increases its balance.
Now, you wonder why in your own books, crediting your bank account
decreases the balance.
That is because from the Bank's perspective, your account with them is
their Liability. They owe you the money. To increase a Liability, you
Credit it, to decrease, you Debit it. (also why when the bank 'debits'
your account *in their books* the balance decreases)
But in your books, your account with the Bank is your asset. It is
something you own. (even though in possession of another) To increase an
Asset, you Debit it, and to decrease it, you Credit it.
Both of these are consistent, but opposite perspectives based on whose
books you are talking about.
Both perspectives fully satisfy the Accounting Equation:
Assets = Liabilities + Equity
'Equity' (previous Equity known as 'Retained Earnings') has some
temporary accounts you may be familiar with:
Equity = Retained Earnings + Income - Expenses
subbing in those terms, you get:
Assets = Liabilities + Retained Earnings + Income - Expenses
If you move Expenses to the left side, so all operations are positive,
you get the expanded equation containing the 5 Top Level accounts:
Assets + Expenses = Liabilities + Retained Earnings + Income
or
Assets + Expenses = Liabilities + Equity('previous') + Income
The left side is debited to increase and credited to decrease.
The right side is credited to increase and debited to decrease.
If the left side increases, so must the right and vice versa, and the
reverse.
Debits = Credits
Debit = Left Column
Credit = Right Column
It is quite intuitive, and a bit elegant.
Regards,
Adrien
On 12/19/22 9:55 PM, Dr. David Kirkby wrote:
I havé never used Quicken, but was previously using a spreadsheet. The
double entry does take a bit of getting used to - for example, if you
credit the bank account, the amount of money decreases. It seems a bit
counterintuitive, but the concepts are explained well in the manual.
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