Swiccom Finance

Certainly! Let’s delve into the fascinating world of debits and credits in the context of bank statements.

1. Debits and Credits in Accounting:
   • In accounting, debits and credits are fundamental concepts. They represent the left and right sides of a financial transaction.
   • Every transaction affects at least two accounts. One account will be debited, and another will be credited.
   • The total debits must always equal the total credits to maintain the balance.
2. Bank Transactions:
   • When you hear your banker say, “I’ll credit your checking account,” it means the transaction will increase your checking account balance.
   • Conversely, if your bank debits your account (e.g., deducts a monthly service charge), your checking account balance decreases.
   • This might seem puzzling because it appears contradictory to what you learned about debits and credits in accounting.
3. Illustrating with Transactions:
   • Let’s consider a scenario:
     • Your company, Debris Disposal, receives $100 in cash from a customer as a down payment for a future service.
     • Debris Disposal records this transaction as follows:
       • Debit the Cash account by $100 (increasing the balance).
       • Credit the Unearned Revenues account by $100 (reflecting the liability to perform the service or return the $100).
     • Now, you take that $100 to Trustworthy Bank and deposit it into Debris Disposal’s checking account:
       • Trustworthy Bank records this as:
         • Debit its Cash account by $100 (increasing the bank’s assets).
         • Credit the Customers’ Checking Accounts (reflecting the bank’s obligation to return the $100).
4. Consistency with Accounting Principles:
   • Although it seems counterintuitive, the bank’s treatment aligns with basic accounting principles.
   • When cash is received, the bank debits its Cash account (like you would in accounting).
   • When cash is withdrawn, the bank credits its liability account (like you would in accounting).

In summary, banks use credits for liabilities (such as customer deposits) and debits for assets (like cash). It’s a dance of numbers that keeps the financial world in balance! 💃🏽💰