Canada Confusion in understanding debits and credits in GL accounting

[Amir Siddiqui]

Hi there,

I am an IT professional, and do not have in depth knowledge in General Accounting and/or GL Accounting. However I am aware of many business types as I have been developing many software systems for different businesses. Now in one system, I am dealing with GL Accounting, and here I am confused and want some clarifications. Here is my question:

1) In a normal bank account, when an amount is withdrawn, it is considered a 'Debit' which reduces the account balance, and when an amount is deposited into the account, it is considered a 'Credit' which increases the account balance. And the account holder considers money in his bank account as his 'Asset'.

But in GL accounting I read that Asset balances are recorded as 'Debit' balances, and a when an amount is received, it is considered a debit and hence the debit balance increases, and when some amount is taken away from account, it is considered a credit and the account balance is decreased. This is exactly the reverse of what we see in the bank account calculations......, my questions is why this is so?

In short; In my bank account when I receive money it is a credit which increases my account balance and when I pay out something, it is a debit and decreases account balance (my asset) ..... but WHY in GL Accounting it says a money received is considered a debit and increases debit side of account balance (of asset account), and a pay out from account is considered a credit which decreases account balance (i.e. increase credit side of balance)? why it is reverse of bank account calculations?

Thanks in Advance/

 

[Radek Výtisk]

Simple answer to this question is that on the bank statement, it is shown from the bank's perspective and they see your bank account balance as their liability to you. So when you deposit money into your bank account, their liability to you increases, therefore it is a credit accounting entry for them. On the other hand, when you withdraw your funds, their liability towards you decrases and they show it as a debit accounting entry.

Does it make more sense?

 

[Amir Siddiqui]

Hi there,

I am an IT professional, and do not have in depth knowledge in General Accounting and/or GL Accounting. However I am aware of many business types as I have been developing many software systems for different businesses. Now in one system, I am dealing with GL Accounting, and here I am confused and want some clarifications. Here is my question:

1) In a normal bank account, when an amount is withdrawn, it is considered a 'Debit' which reduces the account balance, and when an amount is deposited into the account, it is considered a 'Credit' which increases the account balance. And the account holder considers money in his bank account as his 'Asset'.

But in GL accounting I read that Asset balances are recorded as 'Debit' balances, and a when an amount is received, it is considered a debit and hence the debit balance increases, and when some amount is taken away from account, it is considered a credit and the account balance is decreased. This is exactly the reverse of what we see in the bank account calculations......, my questions is why this is so?

In short; In my bank account when I receive money it is a credit which increases my account balance and when I pay out something, it is a debit and decreases account balance (my asset) ..... but WHY in GL Accounting it says a money received is considered a debit and increases debit side of account balance (of asset account), and a pay out from account is considered a credit which decreases account balance (i.e. increase credit side of balance)? why it is reverse of bank account calculations?

Thanks in Advance/

Ok thanks very much!