Every transaction in accounting has a debit and credit side to it. For example when you write a cheque for $110 for a telephone bill the entry being created behind the scene in the accounting system is:
| NO consumption taxes such as VAT or GST | ||
|---|---|---|
| CREDIT | $110 | Asset: XYZ bank Cheque |
| DEBIT | $110 | Expense: Telephone/Mobile |
| WITH consumption taxes such as VAT or GST (say 10%) | ||
|---|---|---|
| CREDIT | $110 | Asset: XYZ bank Cheque |
| DEBIT | $100 | Expense: Telephone/Mobile |
| DEBIT | $10 | Loan: Tax Payable |
FAQ’s
Why do these transactions look back the front?
When a bank sends you a bank statement it is a list of transactions from their accounting system from their point of view. Money that is the customer’s is a Credit and money that is their’s that they have to pay on to someone else is a Debit. This is the same for nearly all accounting systems including Saasu’s web finance engine. Money that is yours is a Debit and money that is being paid to someone else is a Credit.
Why do accounting systems do this, its confusing?
There is a reason, it is to ensure that transactions and the accounts can be balanced. Double entry accounting is where every Credit has an equal Debit (as in the example above for a Telephone expense payment). So the sum of all transactions in your accounting system will add up to zero if every transaction has a debit and credit side. This is one of many checks that accountants use to ensure that entries have been done correctly.
Why doesn’t my bank statement in Saasu show Debits and Credits?
If we showed Credits as Debits in Saasu it would confuse many users as it would be opposite to what their bank statements show. So instead we refer to them as Deposits and Withdrawals for simplicity’s sake.
