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Debits and credits
Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account. Each transaction transfers value from credited accounts to debited accounts. For example, a tenant who writes a rent cheque to a landlord would enter a credit for the bank account on which the cheque is drawn, and a debit in a rent expense account. Similarly, the landlord would enter a credit in the rent income account associated with the tenant and a debit for the bank account where the cheque is deposited.
Debits typically increase the value of assets and expense accounts and reduce the value of liabilities, equity, and revenue accounts. Conversely, credits typically increase the value of liability, equity, and revenue accounts and reduce the value of asset and expense accounts.
Debits and credits are traditionally distinguished by writing the transfer amounts in separate columns of an account book. This practice simplified the manual calculation of net balances before the introduction of computers; each column was added separately, and then the smaller total was subtracted from the larger. Alternatively, debits and credits can be listed in one column, indicating debits with the suffix "Dr" or writing them plain, and indicating credits with the suffix "Cr" or a minus sign. Debits and credits do not, however, correspond in a fixed way to positive and negative numbers. Instead the correspondence depends on the normal balance convention of the particular account.
The modern double entry system was likely a direct precursor of the first European adaptation many centuries later. The first known use of the terms "debit" and "credit" occurred in the Venetian Luca Pacioli's 1494 work, Summa de Arithmetica, Geometria, Proportioni et Proportionalita (A Summary of Arithmetic, Geometry, Proportions and Proportionality). Pacioli devoted one section of his book to documenting and describing the double-entry bookkeeping system in use during the Renaissance by Venetian merchants, traders and bankers. This system is still the fundamental system in use by modern bookkeepers.
It is sometimes said[weasel words] that, in its original Latin, Pacioli's Summa used the Latin words debere (to owe) and credere (to entrust) to describe the two sides of a closed accounting transaction. Assets were owed to the owner and the owners' equity was entrusted to the company. At the time negative numbers were not in use. When his work was translated, the Latin words debere and credere became the English debit and credit. Under this theory, the abbreviations Dr (for debit) and Cr (for credit) derive directly from the original Latin. However, Sherman casts doubt on this idea because Pacioli uses Per (Italian for "by") for the debtor and A (Italian for "to") for the creditor in the Journal entries. Sherman goes on to say that the earliest text he found that actually uses "Dr." as an abbreviation in this context was an English text, the third edition (1633) of Ralph Handson's book Analysis or Resolution of Merchant Accompts and that Handson uses Dr. as an abbreviation for the English word "debtor" (Sherman could not locate a first edition, but speculates that it too used Dr. for debtor). The words actually used by Pacioli for the left and right sides of the Ledger are "in dare" and "in havere" (give and receive). Geijsbeek the translator suggests in the preface:
[I]f we today would abolish the use of the words debit and credit in the ledger and substitute the ancient terms of "shall give" and "shall have" or "shall receive", the personification of accounts in the proper way would not be difficult and, with it, bookkeeping would become more intelligent to the proprietor, the layman and the student.
As Jackson has noted, "debtor" need not be a person, but can be an abstract party:
...it became the practice to extend the meanings of the terms ... beyond their original personal connotation and apply them to inanimate objects and abstract conceptions...
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Debits and credits
Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value to that account, and a credit entry represents a transfer from the account. Each transaction transfers value from credited accounts to debited accounts. For example, a tenant who writes a rent cheque to a landlord would enter a credit for the bank account on which the cheque is drawn, and a debit in a rent expense account. Similarly, the landlord would enter a credit in the rent income account associated with the tenant and a debit for the bank account where the cheque is deposited.
Debits typically increase the value of assets and expense accounts and reduce the value of liabilities, equity, and revenue accounts. Conversely, credits typically increase the value of liability, equity, and revenue accounts and reduce the value of asset and expense accounts.
Debits and credits are traditionally distinguished by writing the transfer amounts in separate columns of an account book. This practice simplified the manual calculation of net balances before the introduction of computers; each column was added separately, and then the smaller total was subtracted from the larger. Alternatively, debits and credits can be listed in one column, indicating debits with the suffix "Dr" or writing them plain, and indicating credits with the suffix "Cr" or a minus sign. Debits and credits do not, however, correspond in a fixed way to positive and negative numbers. Instead the correspondence depends on the normal balance convention of the particular account.
The modern double entry system was likely a direct precursor of the first European adaptation many centuries later. The first known use of the terms "debit" and "credit" occurred in the Venetian Luca Pacioli's 1494 work, Summa de Arithmetica, Geometria, Proportioni et Proportionalita (A Summary of Arithmetic, Geometry, Proportions and Proportionality). Pacioli devoted one section of his book to documenting and describing the double-entry bookkeeping system in use during the Renaissance by Venetian merchants, traders and bankers. This system is still the fundamental system in use by modern bookkeepers.
It is sometimes said[weasel words] that, in its original Latin, Pacioli's Summa used the Latin words debere (to owe) and credere (to entrust) to describe the two sides of a closed accounting transaction. Assets were owed to the owner and the owners' equity was entrusted to the company. At the time negative numbers were not in use. When his work was translated, the Latin words debere and credere became the English debit and credit. Under this theory, the abbreviations Dr (for debit) and Cr (for credit) derive directly from the original Latin. However, Sherman casts doubt on this idea because Pacioli uses Per (Italian for "by") for the debtor and A (Italian for "to") for the creditor in the Journal entries. Sherman goes on to say that the earliest text he found that actually uses "Dr." as an abbreviation in this context was an English text, the third edition (1633) of Ralph Handson's book Analysis or Resolution of Merchant Accompts and that Handson uses Dr. as an abbreviation for the English word "debtor" (Sherman could not locate a first edition, but speculates that it too used Dr. for debtor). The words actually used by Pacioli for the left and right sides of the Ledger are "in dare" and "in havere" (give and receive). Geijsbeek the translator suggests in the preface:
[I]f we today would abolish the use of the words debit and credit in the ledger and substitute the ancient terms of "shall give" and "shall have" or "shall receive", the personification of accounts in the proper way would not be difficult and, with it, bookkeeping would become more intelligent to the proprietor, the layman and the student.
As Jackson has noted, "debtor" need not be a person, but can be an abstract party:
...it became the practice to extend the meanings of the terms ... beyond their original personal connotation and apply them to inanimate objects and abstract conceptions...