Here’s a question I get very often from my students:
When I increase my cash account in my books, I use a Debit to do so, as in a Debit to the Cash Account.
When I make a bank deposit, the bank says it has CREDITED my account. Why do they credit my account at the bank when I make a deposit?
Answer: The customer only sees one side of this transaction. When you deposit money in a bank, the bank DEBITS its Cash account and CREDITS a liability account, which is your account at the bank. Yes, your money on deposit at the bank is a liability, and like all liabilities, it is increased with a Credit.
To quote Warren Buffett, “banks make their living from their liabilities.”
