Read Along With the VideoTranscript
We have finally arrived at debits and credits. This is the best. Debits and credits are the foundation of the double entry accounting system. Debits and credits are the most important thing. If you don't understand debits and credits, you're not gonna understand anything else from here on out in accounting. You must understand debits and credits. And the good news for you is debits and credits are very, very easy to understand. Before we go any further, it's important that you lose all preconceived notions of what these words mean. These words right now mean nothing. Debit is not good, credit is not bad. It's not bad to have credit.
It's not good to have credit. These words are accounting words. They mean nothing to you right now. So if you think you know what debits and credits means because you have a debit card or because you have a credit card, you're wrong. Don't think about that. Right now, debits and credits should mean nothing to you at all because these words in accounting mean something very, very specific. Let's see what that is. Debit in accounting means left.
Credit in accounting means right. I'm serious. That's what they mean. That's it. That's all that you have to know in accounting. Debit means left. Credit means right. I'm gonna do this again because it's important. Debit means left.
Credit means right. Period, end of story. Okay? Now let that sink in for a little bit. Okay. Now that you've just learned what the words debit and credit mean, left and right, let's flesh that out a little bit. So if you've watched the video about T-accounts, you remember me doing this.
I made the cash account, and then I put a plus on the left side, and I put a minus on the right side. So this is the T-account for cash. If you haven't watched that video yet, you should probably go back and watch it. So now, how do these two things tie together? Well, let's just get rid of these for now.
Okay? This is the cash T-account. You'll notice it has a left side. It also has a right side. You see that? Left side, right side. So instead of calling it the left side or the right side, you know what accountants call it?
They call it the debit side or the credit side. Debit means left. Credit means right. You can also use it as a verb. So you could say debit the cash account. And if you wanna take a guess what that means, that means put this amount on the left side, right? Because debit means left. So if someone says, "Debit cash for 200," that means put 200 on the left side in the cash account, 'cause debit means left. Credit sales for 500. That means in the sales account, put 500 on the right side. Okay? So you can use it as a verb, debit cash, or you can use it to describe the left side of the account.
This is the debit side. This is the credit side. And I know at this point you probably think I'm crazy, but I cannot stress how important it is that you remember this. Debit left, credit right. So we still don't know based on the information I've given you so far. Let's get rid of some of this junk. We still don't know if I have increased or decreased cash, right? I put 200 on the left side. That's all I've told you is 200 on the left side. We don't know if that made cash go up or if that made cash go down. All we know is that we've got 200 on the left side.
Now, if I say credit cash for 100, well, now we've got 100 on the right side and 200 on the left side. So we know that cash has a debit balance of 100, right? 'Cause I had 200 on this side, took away 100 from that side.
That leaves me with 100 at the bottom. Had it been reversed, it would be just the opposite. Had I said, "There's 200 on this side and there's 100 on this side," well, then the extra 100 is over here, right? 200 minus 100 is still 100. All I'm doing right now is debiting and crediting. I'm not telling you if I'm putting cash in or if I'm taking cash out. I'm just telling you I'm debiting and crediting. And that's where you need to start. You need to start by understanding debits and credits are sides of accounts.
And once you understand that, then we can move forward to understanding where this plus and where this minus came from. And to get there, we've got a whole nother video called Determining Normal Balances. It's a riot.