Cash Account Seems Back-To-Front

Cash Account Seems Back-to-Front

On your bank statement, a deposit will be shown as a credit entry

However, when recording the deposit in the cash account, you’re asked to use a debit entry

This probably seems wrong to you

​More than likely, you will see a deposit as a positive thing

So it should be shown as a credit in your records, as well

This sounds right, but debits & credits don’t show positive & negative values

Instead, they show a flow of money or value from one account to another​

For example, if a business makes cash sales, it deposits the cash takings in the bank​

To record this transaction, you credit the sales account to show money came from sales​

Then you debit the cash account to show the money went to the bank​

So, in this case, the debits & credits show that money flowed from sales to the bank

Debits & credits also show a flow of money in the bank’s records

The bank will use a credit entry to show that the money came from you

Then it will use a debit entry in an internal account to show where the money went

In this case, the debits & credits show that money came from you and went to where ever the bank put it.

The bank’s month-end statement is a copy of your account at the bank

Your account shows a deposit as a credit entry

So the bank statement will also show the deposit as a credit entry

This is in contrast to the cash account that shows the deposit as a debit

© R.J. Hickman 2022