Quote from: ribuck on May 02, 2011, 07:35:39 AM

Additions are debits from a bank's point of view, but credits from a customer's point of view.

The reason for the confusion is that it's double entry accounting (each trans has two sides, a debit and a credit) plus we're talking about two different entities, a bank and an individual. So two transactions that each have two sides = confusion! Tongue

Rule of thumb: when discussing debits and credits, entities are mirrors of one another. As a simple example: when I send an invoice to somebody, it's a credit to my Accounts Payable account and a debit to an expense account, but it's a debit to their Accounts Receivable account and a credit to their sales account. The transactions mirror each other. I call this "the mirror principle" and I honestly believe I thought of this myself. I've never read it in any book or website, but it holds true for every single accounting transaction between two entities.

If I hand somebody cash, it's a credit to my "petty cash" because I've lowered the balance on my books, but on that person's books it's a debit to "petty cash" because their cash balance has been raised.

So back to the bank example: bank statements call withdrawals debits because from their pov it IS a debit.... when they hold money for you, it's a liability to them since they owe you that money, they're holding it on your behalf. When you withdraw some, they no longer owe you that amount, so they debit the liability account that has your name on it. It now has a lower balance that it did before. Same for when you add money, they call it a credit because they now hold more money on your behalf... the liability balance has been raised, so it's a credit on their books.

.... but on your books it's a debit because your cash balance is raised. Remember the mirror!