Well explained, but nobody ever explains the WHY. It has to be a reason why this system works this seemingly unintuitive way. What exactly does "Credit" and "Debit" mean??? Is there anybody in this world who knows?? I don't think the guy who invented this system chose this randomly, IT HAS REASONS. And I need to know them.
Hello Juan! I suggest to research the work of Luca Pacioli. I have a brief section on him in my video on the history of accounting ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-HAL0sBd9oyg.html It might be good to read his original works.
Thank you so much. I am just learning the basics of accounting at uni and I always thought that Debit always meant increase and Credit always meant dicrease which left me confused all the time. This cleared up so many things for me.
Hello Giorgi! Happy to help. :-) I hope you will find many more useful videos in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html
I am starting accounting school and I want to give myself a little bit of a head start! My husband likes to learn about finance for fun and he has been watching your videos for months. He showed me your channel and you do such a fantastic job of explaining these concepts! Thank you!
@@hannahsharma5108 Thank you so much for the kind words, Hannah! So happy that both your husband and you are enjoying the videos. Great that you are getting a headstart on your accounting education. I hope the videos in my "Accounting 101" playlist help you a lot: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html And once you get a grip on these, there is an intermediate accounting playlist as well. Let's take it step by step, one day at a time!
@@xcdom324 Welcome! I have several playlists that can give you a headstart on the topics: accounting 101 ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html finance case studies ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-PI9X5Ybek_E.html
I'm a new learner of accounting from non-accounting background, btw I'm not a ntive English speaker, so it's such a challenge. Thank you so much for your extraordinary videoes!!! These videoes are saving my life right now and I'm goona watch them one by one (it's what I'm doing now and I watch each for 2-3 times, forgive me I'm still trying to catch up with your English speed). But what impress me most is that your video not only help me understand the concepts, but also raise my enthusiasm and confidence. After graduate and find a job, I will support you I promise ( now I don't even have a credit card...). All in all, love form China!!! Love from me!!!
Thank you so much for the kind words! I am a non-native speaker as well. If some of the videos are too fast, you can change the playback speed to 0.75 and/or switch on the subtitles, that might help for easier understanding. Yes, finance and accounting can be exciting, and not as difficult as most people think! Look forward to your questions and comments. Greetings back from the Netherlands.
Thank you so much for making this video. Really helpful...an engineering guy doing managerial finance for the first time. Your video has helped me to understand the golden rule.
Glad it was helpful! As a next step, I would suggest my "finance basics" (5 big ideas) video ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-iR7b2NjgAO8.html and any of the finance case study videos of well-known real world companies ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-J_1F8GoLOI8.html&pp=gAQBiAQB
Took me years to finally understand this concept. I always just memorised it but could never really get it. I got an A+ in Advanced Financial Accounting last semester. This video set the foundation for me to get there. The way you set it out is great for visual learners. Thank you so much!
Glad to hear it! Videos on related concepts can be found in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.htmlsi=CxJ1ZjpfyVkKfcEV Hope those are helpful as well.
Tell me if I'm wrong. A easy trick is, make a cash account which is created outside the business. When we pay them in cash, we Debit the amount in our business a/c. And when we receive cash from them we Cr. that amount in our company ac. At the same time we mention their cash account and put the value in the opposite coloum. So main account is our business account, rest is all outside account including our personal account.
Not sure what you are trying to achieve here. Any bank account that belongs to the company has to be included in its accounting records. If it's an account belonging to the owner, then the connection is through the current account with the owner.
On the balance sheet (at least in Europe and US), we put what we own on the left-hand or debit side (assets), and what we owe on the right-hand or credit side (liabilities and equity). If shareholder provide equity to a company, then the debit part of the entry is cash (in the assets section), and the credit part of the entry is equity (the certificates of ownership showing that we owe the capital back to the shareholders). For more information/discussion of the steps, see my video on the relationship between income statement and balance sheet: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html
Why does it feel so counter intuitive to call an asset a debit? I felt the same way when I learned that equity was listed as a liability but then it all made sense thanks to your videos.
Hello Hannah! That is a completely natural reaction. Most people come across debit and credit when they review their bank or credit card statement. The statements that banks and credit card companies supply you are written from their perspective: if it's a credit balance in the account, then the bank owes you money (the bank has a liability to you), while if it's a debit balance, then the bank has money to receive from you. Happy to hear you are enjoying the videos. The official way to look at things in accounting is to say that assets go on the left of the balance sheet (what we own as a company) and liabilities go on the right of the balance sheet (what we owe). Hope that helps!
Thank you! That's a compliment I love to hear. :-) Have you checked out the rest of the Accounting 101 playlist? There might be more useful stuff in there for you: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html&pp=gAQB
Sorry to hear that. Have a look at a few of the related videos in the Accounting 101 playlist, maybe these will help: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html&pp=gAQBiAQB
Thank you for the feedback. Sorry to hear that. Maybe the concept makes more sense if you watch the related videos on the accounting equation ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html and the relationship between income statement and balance sheet ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html
Don't worry, you will get there, it's mostly a matter of accumulating some mileage. See also the sequel on debits and credits DC ADE LER ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html and T accounting ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-f1TDNhuPJLc.html
Agreed. It's completely backwards. And the only explanations involve assuming certain things are credit or debit based and just accept it. It's like they expect you to have faith and then it will feel right. Is accounting a religion ? An asset is assumed to be a debit ? That's just dumb. An asset has value. Credit means add value so to increase the value of an asset you should add credit. It's not like you can add debit....that's an oxymoron. Or am I ?
Lots of exciting and helpful new videos coming up! Be sure to click the like button, subscribe and turn on notifications to ensure you don't miss anything. Watch the related video on the accounting equation ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html and the video on making journal entries using double entry accounting (with examples!) ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-EibibVFEkvk.html or my latest video explaining debits and credits ADE LER ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html
Love it! So happy to hear that. I recently made a follow-up video on debits and credits using ADE LER, that seems to be a good way for some people to remember the "sign" of the accounts as well: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html But once you get it.... you get it! :-)
Great to hear that, Winatcha! Enjoy using your new knowledge on debits and credits. More related videos in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html
Goodness THANK YOU ! the visuals are super simple and effective and your voice helps seeing that my teacher is half asleep trying to muster out a damn letter, that was great for a change. T H A N K YOUUUU!
Happy to help! Please share with fellow students. 😊 Related concepts can be found in my Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html&pp=gAQBiAQB
So in simple words, businesses are always looking forward to increase credits and decrease debits. I have adhd so it’s harder for me to understand things. Thanks so much for this video 😊
Hello! There is a bit more to it than that. In the income statement (sometimes called profit and loss statement or P&L) we indeed like credits and we don't like debits much. When a company sells something, you record a credit in revenue (a P&L account) and a debit on the balance sheet (in accounts receivable, part of assets). When you record an expense, for example for maintenance, you debit maintenance expense in the P&L and credit accounts payable (in the category of liabilities) on the balance sheet. Have a look at my short video on T-accounts, a technique for making this very visual ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-f1TDNhuPJLc.html Or go through my short story of the business and accounting steps in starting a business ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html Hope these help! Let me know.
Thank you so much for this helpful video man. I read my chapter in my textbook and still had a hard time understanding this before my exam but I watched this short clip and understood right away! Passed my first exam with a 76% thanks to this video. Much appreciated 👍
Wow! Well done. Great to hear that, Christian! Thank you for sharing this. And well done for going beyond your textbook and looking for more information to learn about a topic. That will get you very far! Hope some more videos on my channel can help you at some point. Please tell your friends about the channel. ;-)
Greetings back from the Netherlands! My video on US GAAP vs IFRS should get you started there: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-7B96MhOGaqE.html What could be useful as well is to read through the Indian GAAP vs US GAAP manuals that accounting firms like KPMG, PWC, etc publish.
The only thing this explanation tells me is that you don't understand why *I* don't understand debits and credits. The book (and you) is expecting me to memorize this information - I'd rather understand why it is how it is so I don't HAVE to memorize it.
As others have mentioned, this video, similarly to all other videos I've found so far, explains nothing. Telling you to memorize a bunch of stuff is not an explanation.
Hello Lional! I looked for some background on the words debit and credit, and there seem to be several competing explanations. Most likely it has either latin or Italian roots, and dates back from the early Renaissance. See also my video on the history of accounting: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-HAL0sBd9oyg.html
Thanks! Videos on related topics can be found in my Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html&pp=gAQBiAQB
The reason why is video explained it so clear as it implies the principle of destination and source. Many textbook makes it complicated. It will be much easier if they explain that if the left side of equation increases so does the right side. All the examples in this video tried to illustrate this. If a part of a side of equation increases without an increases on the opposite sied of the accounting equation, there must also be a decrease on a different part on the same side of the equation which that part increases. For example, a bank deposit receipt will illustrate an entry to debit cash (increased) and credit Accounts Recivable (decreased). Both cash and account recivable is considered assets account. So one increased the other must decreased. This is an awesome video.
Thank you so much for the kind words!!! You are on the right track. 🙂 This playlist ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html might have more videos that are of interest to you. Wishing you lots of success!
You can also use the Acronym DEA-LER which may be a little easier to remember. Debits increase Dividends, Expenses, and Assets, and Credits increase Liabilities, Expenses, and Revenue. Vice-Versa.
May I ask what is the double entry for me buying sth on credit, or someone buy my things on credit, and why. I tried to remember the double entries but I cannot understand so I keep forgetting. This subject is so difficult I can't even understand the basical things TT
Hello Zara! Yes, this subject needs a bit of practice. I have actually just published a video today with another perspective on debits and credits, including an example of a company buying inventory from a supplier, for which they receive an invoice that does not have to be paid immediately. Please take a look and see if that answers your question: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html
So happy to hear that, Daniel!!! Glad I could help! Videos on related topics can be found in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html&pp=gAQBiAQB Please consider supporting the channel through a membership: ru-vid.com/show-UCQQJnyU8fALcOqqpyyIN4sgjoin
Help is on the way in the form of this playlist: ru-vid.com/group/PLKbmcnUUQMlnWPLx9IeS-cYec2r7GzJ3S Remember, banks send you a statement thinking from their side. So if you have a credit balance on your account, this is viewed from the bank's relationship towards you: the bank owes you money, hence a liability for them.
Thank you, Clinton! That is wonderful to hear. Related topics are covered in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html Enjoy!
You're welcome, Naomi! Happy to help! Feel free to have them browse through the videos and playlists on my channel, there are topics ranging from basic to advanced. For example, I think the video on balance sheet and income statement relationship can be very useful too: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html
Economic transactions drive accounting entries. For example, if my company buys $100K worth of raw material from a supplier on 30 day credit terms (the economic transaction), then I record in my accounting system debit Inventory $100K, credit Accounts Payable $100K. Both my assets (debit) and my liabilities (credit) increase. Does that help?
Glad to hear it! More videos on related topics in the Accounting 101 playlist: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html&pp=gAQBiAQB
Wait if this is the case and debit indicates the assets in increasing then suppose we happen to say that we have some money in our bank but someone doesn't want to reveal amount and just wants to say as "Debit or Credit balance" then which would be the correct one? *I have debit balance in my bank account or I have credit balance in my bank account* ???
Hello Niraj. Bank statements are written from the bank's perspective. If you have money in your bank account, then that is an asset for you, and on the bank's side a liability from the bank to you. Hence the bank statement will say you have a credit balance.
@@TheFinanceStoryteller Okay thank you! I understood But i want to know that if i want to tell someone that i have money in my account that should i say? "I have credit balance in my bank account or I have debit balance in my bank account" ??
Thank you for the video ! Though, I've created an excel that can track all your finances, from income, expenses, to account transfers and exchanges, BUT i don't understand why accountability has to be soooo complicated, my God ! I start to think it's so only so that people don't understand how to manage money. In addition to that, credit = a given loan, debit = a borrowed loan. Why a normal banking account has to be named "debit" account? Why is the bank assuming from the start that i am a possible borrower ? Rigged system...
Happy to help! It seems to me that a lot of people get confused because of all the options we have nowadays of storing and transferring money. Regarding your question about banking: your bank statements are written from the perspective of the bank. If the bank owes you money ("you have money in the bank"), then from their perspective, it is a liability to you, hence a credit balance.
Great video , very clear, but I have a question, in @2:42 the assets is credit and the liabilities are debits, how come, I thought all assets are debits and all liabilities are credits, thank you.
Good question, Marwan! The natural state for an asset is to have a debit balance, booking a credit to assets in a journal entry (partially or fully) decreases that debit balance. The natural state for a liability is to have a credit balance, booking a debit to liabilities decreases the liability. Remember that in an earlier step in the video, the liabilities were credited when we booked an invoice from a supplier. Recording a debit once that invoice gets paid decreases (or even fully cancels out) the liability. Similar story for assets. They got a debit (increase) when we raised cash earlier, now we are using the cash to pay an invoice to a supplier, so the asset needs to decrease (by booking a credit to the account). I think you will enjoy the video on the accounting equation ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html and double entry accounting as well ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-EibibVFEkvk.html Similar stories, but explained in a different way.
why the hell the increase of equity is a credit??every source in the internet explain this shit by refering to textbook, which makes it so hard to understand
Hello Jackson. Take a look at my video on the relationship between balance sheet and income statement, that should clarify it: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html Basically, the reason equity is on the credit side is that this amount is owed to shareholders. Just like with a borrowing from the bank, in which case the money is in liabilities, which is also on the credit side of the balance sheet.
Sorry to hear that. Try the follow-up video using DC ADE LER: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-b93KBmcXanI.html or study the accounting equation first: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html
Please note that I am using the "Western" system of having debits on the left, credits on the right, assets on the left, liabilities and equity on the right. I think what I have seen happen in India is for liabilities to be stated on the left, and assets on the right. If you want to get an idea of how the income statement and balance sheet relate (through retained earnings), then take a look at this related video: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html
That's a good acronym to remember the structure! I think you will enjoy my video on the relationship between income statement and balance sheet, that makes this come alive: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html
Sooo happy to hear that! :-) You're welcome. If you enjoyed this video about debits and credits, then the related one on double entry accounting might be helpful as well: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-EibibVFEkvk.html
Don't worry. Everyone learns in a different way. Maybe the related videos on the accounting equation ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OYql7Y9NnBg.html or my walk-through of accounting for the transactions in starting a business ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-wZdaVEX41WQ.html will help! Let me know.
What is a "natural state"? An asset's natural state is a debit balance? How is that determined? It seems to me that an asset would natural be a credit... I'm not understanding this at all
You might be confused with how banks reflect balances on statements. Those are written from the bank's perspective. If the bank owes you money, then they have a liability to you, hence a credit balance in their books. If you owe money to the bank, then they have a receivable on you (an asset), hence a debit balance in their books. Does that help?
