Debit and credit: where the words of accounting come from

A credit that is a debit

Olivia Reed has just opened a bicycle shop. Her first month of bookkeeping goes well until she compares two pieces of paper. On her statement, the bank says it “credited” 500 when she deposited the day's takings. In her books, her accountant recorded that same deposit as a debit to the Bank account. Credit or debit? Who is wrong?

Nobody. Olivia has just stumbled on a confusion more than five hundred years old, one that clears up as soon as you know where the words come from.

The account as a person

Medieval Italian merchants mostly kept accounts of people: of customers who owed them and of suppliers they owed. They wrote that the customer deve dare, must give, or deve avere, must receive. Hence the Italian dare and avere, and the Spanish debe and haber, from the Latin debere, to owe, and habere, to have.

Over time the same words were applied to every account, even cash or expenses, which are not people. That is why debit does not mean “what I owe”. It is simply the name of an account's left-hand column, and credit the name of the right-hand one.

Why the debit goes on the left

There is no deep reason: it is a custom. Venetian ledgers put each account's debits on the left-hand page and its credits on the right, facing each other. Luca Pacioli described that layout in 1494, the printing press carried it across Europe, and it stayed. Today, in every language, the debit goes on the left.

Every language says it its own way

Behind credit lies the Latin verb credere, to believe. To give credit was, and still is, to trust that someone will pay. Greek reached the same idea on its own: πίστωση comes from πίστη, faith.

Why the bank credits what you debit

Back to Olivia. When she deposits 500, her money at the bank goes up: in her books, the Bank account is an asset, and an asset increases with a debit. But for the bank, that deposit is a debt: it owes Olivia 500. In the bank's books, Olivia's account is a liability, and a liability increases with a credit. The statement is written from the bank's books, not hers.

Both are right, each in their own books. Understanding this clears up half the confusion of anyone starting out.

Balance, in the red and in the black

Balance comes from the Latin bilanx, the two-pan scale. That is what a balance is: two sides that must weigh the same.

Bookkeepers wrote negative figures and losses in red ink. Hence being in the red and, the other way round, in the black. A popular story says Black Friday got its name because it is the day shops go into the black. That explanation came later: Philadelphia police used the phrase in the 1950s and 1960s to describe the traffic chaos on the day after Thanksgiving.

Cheque and auditor

The English treasury was called the Exchequer after the chequered cloth, like a chessboard, on which its officials counted sums with counters. From the same root, the game of chess, comes the English word check, a control, from which cheque derives.

Auditor comes from the Latin audire, to hear. For centuries, accounts were presented aloud, and whoever reviewed them was, quite literally, the one who listened.

What Olivia learned

Olivia stopped arguing with her bank statement. She now reads debit and credit as what they are, two columns, and before asking whether something is a debit or a credit she asks whose books it is written in. Her accountant says it is the most useful question a client has ever asked him.

Where Aconta Online comes in

Aconta Online uses the words accountants have always used, in fourteen languages, and each one is a click away from its explanation in the glossary: debit, credit, normal balance, reversal and the rest. Every entry shows its two columns and is not recorded unless they balance. The first company is free, no card required.