Help in understanding a basic accounting principle accounting, understand, actually, decrease

kseniaru

'An entry which increases an asset account is called a debit.'

So if my bank account is my asset account, when I debit money, money actually goes out so it is a 'decrease'. But the above statement has it the other way round.

Kindly help me understand this.

jcole21

I "think" its because the bak statement is from the perspective of the bank. The money held in your account is a liability for the bank.

brain_wash_your

?



Edited 1 time(s). Last edit at Sunday, July 10, 2011 at 08:29PM by Micholien.

Wendy01

Casey is right, when you look at your bank statement, the statement is shown from the perspective of the Bank. The money you deposit is a liability to the bank, therefore when you withdraw money their Liability is reducing hence a debit.

From the companies perspective, cash/bank a/c are an asset, hence the rule applies, i.e., 'An entry which increases an asset account is called a debit.' For example when you by a machinery for cash following transactions occur:

Debit: Machinery A/C ( Asset increasing, hence the Debit)
Credit: Cash/bank A/C (ASSET decreasing, hence the Credit)

Hope this helps!

maratikus

To add to Shanan, debit is increase of asset or decrease of liability. Your account with the bank is an asset for you but a liability for bank. So when you withdraw cash , bank bebits the amount indicating a reduction of his liability.

Bank statement is a statemnt of bank's liability. So try to recognize it from banks perspective.

PieMan

I was told were not supposed to learn/know debits and credits. Is that not true?

RepoToronto

Thanks lxwarr30!