Most of accounting can be summed up in two words: debit and credit. What do these words means?
Debit and Credit is supposed to be very boring and tedious for human beings.
For accountants this is the very essence of life.
Debit and Credit : Left or Right
You might have heard the following story about an accounting wizard :
A wealthy wall street banker was famous for his numerical skills – he could take in the most complicated balance sheet at one glance.
Trained as an accountant he would come to his office every day open a wall safe behind his desk take out a small piece of tightly rolled paper,look at it then place it back in the safe.
When the banker died, his junior was naturally very much interested to know what was written on that slip of paper. He gained access to the safe took out the paper and unrolled it.
Written in the bankers own handwriting were these words :
“Debit is on the left , Credit is on the right”.
And thereby hangs another tale.
Why is debit on the left and credit on the right ?
For finding an answer we have to go back in time to the middle ages and look at the origins of word debit and credit.
It turns out that debit is related to the word debt.
Where did debt come from ?
Debt
Debt is originated as debita, the plural of latin debitum that which is owed, a noun formed from the past participle of the verb debere ‘owe’. In the 15th century, English independently borrowed Latin debitum as debit. People who owned money to others were called ‘debtors’.
Debtors in those times really had a tough time: prisons were full of them. And of course, we all know what Shylock would have done to Merchant of Venice, had Portia not been around. So owing money to someone was probably a bad thing.
Left
So was being left-handed. People who were left-handed were considered evil by the church. From 1484 to 1782, thousands were burned alive to the stake as witches or sorcerers. The left hand continues to be considered unclean even today in
The old English word for ‘left’, was ‘winestra’. Tracing the origin of this word, we find that originally it meant ‘friendlier’. Its polite application to ‘left’ is a reminder that historically the left-hand side of the body has been superstitiously regarded as of ill omen. To call it ‘friendly’ was an attempt to placate the evil forces of the left.
Putting these two things together, it is logical that debit would have been put on the left. The logic of putting bad things on the left continued with the Balance Sheet also, where assets were put on the right and liabilities on the left.
Once we have got this far, working out the credit side is much easier. The word credit comes from the Latin word credere meaning ‘to believe, trust’. It has positive connotations (creditable, creditworthy, credible). The word ‘right’ similarly has positivism (doing the right thing). So credit entries were put on the right.
Yes, but what does all this leads to?
In the world, there are two forces at work, good and evil. A coin has two sides, heads and tails. Numbers can be of two types, either positive or negative. A person has two hands, left and right.
Accountants recognized this simple truth long ago, and adapted it to their purposes. According to them, every transaction involves two parties, a giver and receiver. If you receive something, then someone, somewhere must have given it to you.
If you receive something, you become a debtor. Receiving is, therefore, considered to be a debit activity. On the other hand, if you give something to a person, you become his (or her) creditor. Giving is, therefore, ‘credit’.
Debit and Credit are, therefore, two sides of a transaction. Each accompanies the other.
Accountants also say that debits and credits must always be equal to each other in any transaction. Or whenever there is a debit, there should be an equal and opposite credit. Sounds familiar?
A gentleman named Isaac Newton recognized this truth and applied it to Physics in 1687. The Third Law of Motion (Every action has an equal and opposite reaction) was thus born.
It is not clear whether Sir Isaac Newton had taken accounting classes during his college days……….
Regards
K.Ilayaraja.
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