Accounts: Their Construction and Interpretation for Business Men and Students of Affairs

By William Morse Cole | Go to book overview

CHAPTER TWO
DEBIT AND CREDIT

AT the basis of all accounting is the distinction between debit and credit. In simple transactions of sale and payment, few persons find difficulty in deciding which is which; but in many complicated transactions, involving rights and claims, confusion easily arises.

Debit (from the Latin debit, he owes) means, in accounting, not merely that something is owed, but that a definite person (or personified property or force) is responsible for some value. All three elements of this meaning are important: first, the responsibility attaches to a definite person or thing named; second, the responsibility is not necessarily a debt, but often may be acquitted in some way other than by payment; third, the responsibility has its origin in a definite consideration of value. The importance of these three elements will appear later.

Credit (from the Latin credit, he intrusts) means the converse of debit, i. e., a definite person (or personified property or force) has granted some definite value. This again involves the same three elements: the grant was made by a definite person or thing named; it may be in an intangible form, -- in a claim, in the surrender of a right, or in the discharge of a responsibility; it must be susceptible of statement in dollars and cents. That credits do not always represent debts is shown by the fact that capital stock commonly appears on the credit side of corporation reports. The corporation is accountable for the capital stock, but it does not, in the ordinary sense of the word, owe anything upon it.

A few illustrations will be necessary to make clear just when an account should be debited and when credited. The record "J. Jones, Dr., $1000," means that by the business house upon whose books it occurs J. Jones is held responsible for a thousand dollars; but without further explanation we cannot tell whether Jones owes a thousand dollars or is merely to account for his use of a thousand dollars which has been intrusted to him. So far as mere debit and credit are concerned, the two types of responsibility are identical; and hence

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