why does the bank tell you they are "crediting" your account when they increase it and "debiting" your account when they decrease it?
I know this is a simple question but I just want to make sure I am currect with my answer before I post it to my class forme.
Answer:
A bank say's they are "crediting" your account when they increase it and "debiting" your account when they decrease it because if you were to depsite money into your account, that acts like a credit so they are giving you a positive deposit into your account. When they say they are debiting your account, that's when they take money out of the account that you say for them to take out such as a bill or if you were to write a check, they take that ammount out of the account. For Example, they use a T for their ledgers to show the debits in the colume on the left, and the credits on the right. Both are increasing however the debit side is subtracted from the balence at the end of a statement and the credits are added to creat a new ballence.
Am I on the right track with this question?
Yes, you are on the right track with your answer. When a bank says they are "crediting" your account, it means they are increasing the balance in your account. This can happen when you deposit money into your account or when the bank adds interest or any other positive transaction to your account. On the other hand, when the bank says they are "debiting" your account, it means they are reducing the balance in your account. This can happen when you make a withdrawal, write a check, or when the bank deducts fees or any other negative transaction from your account.
In accounting terms, "debit" refers to an entry on the left side of an account, while "credit" refers to an entry on the right side. Both debits and credits affect the balance of an account, but in opposite ways. Debits decrease the balance, while credits increase the balance. The bank uses this terminology to keep track of the inflows and outflows of money in your account and to maintain accurate records of all transactions.
You are on the right track with your answer! Let me explain it further to ensure you have a complete understanding.
In accounting, the terms "debit" and "credit" are used to record transactions in financial accounts. When the bank says they are "crediting" your account, it means they are adding funds or increasing the balance in your account. On the other hand, when they say they are "debiting" your account, they are subtracting funds or decreasing the balance.
The reason for using the terms "debit" and "credit" can be traced back to the double-entry accounting system. In this system, every transaction has both a debit and credit entry, with equal amounts on both sides. A debit entry increases certain accounts (like assets or expenses) and decreases other accounts (like liabilities or income). Conversely, a credit entry increases the opposite accounts.
For example, when you deposit money into your bank account, it is considered a credit because it increases your account balance, which is an asset. On the bank's books, they would debit your account to record the increase in funds. Similarly, when you withdraw money or make a payment, it is considered a debit because it decreases your account balance, and the bank would credit your account to reflect the decrease.
To keep track of these debits and credits, accountants often use a T-account visual representation. The left side is the debit column, and the right side is the credit column. Debits are recorded on the left, and credits are recorded on the right. At the end of an accounting period, the debits and credits are totaled separately, and the difference between them determines the account's ending balance.
So, in summary, the bank tells you they are "crediting" your account when they increase it and "debiting" your account when they decrease it to align with the accounting principles and practices, which involve the use of debits and credits to record and track financial transactions accurately.