Accounting Terminology

Gaz

Isn't it time we bought this into the 21st century? The traditional terminology is cumbersome, illogical and difficult for students to learn. If you look at accounting software the traditional terms of 'debit' and 'credit' for the bank acct are dropped in favour of 'paid in' and 'paid out' respectively hence entries become intuitive rather than having to go through a pointless algorithm with inadequate mnemonics to show that a debit actually increases the amount of money in the bank. For corresponding ledger accts the 'paid in' and 'paid out' columns just need to be swapped and then manual double entry become stupidly simple. Admittedly there will be a few transactions whose entry isn't obvious (such as depreciation) but these can be dealt with using logical deduction.

Pian32

manual double entry already is in your terms stupidly simple.

Where has the value come from (credit)
Where has it gone to (debit)

Paid in and paid out make far less sense where money is not actually been transferred.

For example when you buy or sell something on credit terms no money changes hands so nothing is paid in/out but the relevant assets/liabilities will still be impacted due to the accruals principles (not covered properly till level 3).

Even when money is tranferred I don't think many companies refer to paying out their income and this opens things up to far more confusion for those early in study.

Secondary to this accounts still need to be classed due to how they interact with the financial statements.

The confusion around banks stems from the relative position of the person sending the statements. All your life you see the statements form the banks point of view so when this is reversed due to the point of reference changing it's confusing.

In summary although using different terms could possibly be beneficial using paid in/out makes far less sense once you move away from only using bank and cash accounts. The mneumonic (I'm assuming DEAD CLIC) is more about the classification of the accounts themselves than the transactions within them and there again having a paid in account or a paid out account lends itself to further confusion.

Gaz

Pian32, so why do modern accounting systems use 'paid in' and 'paid out' instead of 'debit' and 'credit'?

Pian32

Out of the ones I have open the only place something similar occurs is on the direct bank/cash accounts as mentioned above. QB for example refers to increases and decreases for other accounts which again won't help if you need to transfer details manually to an accounts layout or check for errors and potential journal corrections. (It also behaves in an opposite manner depending on whether the account is a debit or credit account)

What you'll probably find is a lot of them do this for banks due to what I mentioned about banks above. Lots of people who will handle the bank account on the online forms won't necessarily be trained in an accounting mindset and won't even be thinking about double entry since accounting software will often end up doing this for you when you select a catagory.

For reference when looking through

Sage - Debits and credits throughout
Quickbooks - Spent and Received for bank/cash, Increase and decrease for other accounts and debit/credits in journals
VT Transactions - Refers to things as expense/income, asset/liability so used the smaller classifications

I'm not saying that the idea of changing terminology is necessarily wrong but you'd need something that also makes sense throughout. Including where there is nothing actually been paid immediately.

Gaz

"Sage - Debits and credits throughout" - Incorrect. Check the bank acct headings in Sage Business Cloud Accounting. It really doesn't matter what names are used anyway. I always use paid in and out and reversed entries in the ledgers and convert back to debit and credit if I need too. Many issues you allude too affect the accounts whatever names are used such as my original example - depreciation which is a debit from the bank acct, but there is no money movement. So how does calling this transaction a 'debit' rather than 'paid in' an advantage as both names suggest a movement of money?

Pian32

Sage 50 apologies should have been clearer.

So if it doesn't matter what names are used why the issue?

So you admit you need to understand debit and credit for the process to work. Might as well keep consistency then right?

Debits and Credits don't have to be transfers of money but a transfer of value.

Depreciation is the movement of value from the relevant fixed asset to represent its use being spread over many years. Not sure where you got it transferring form the bank.

Gaz

I'm glad that I'm beginning to win you over which is evident from you strawman argument.

Pian32

What strawman would that be? I can only assume you mean the 3rd line which ties to

'I always use paid in and out and reversed entries in the ledgers and convert back to debit and credit if I need too' (bolding added).

This implies you've needed to use the debit and credit system for things, yet if you'd used it from the beginning there wouldn't be any conversion needed.

I'll also add some terms have been changed over time and still havn't been completely adopted across the board. Such as using Trade receivables and Trade Payables instead of debtors and creditors.

Gaz

"I always use paid in and out and reversed entries in the ledgers and convert back to debit and credit if I need too' (bolding added)".

"This implies you've needed to use the debit and credit system for things, yet if you'd used it from the beginning there wouldn't be any conversion needed".

The only reason I slip back to using debits and credits is to converse with dinosaurs like you that persist in using illogical, antiquated terminology that confuses those new to the profession.

Pian32

Ah insults rather than engaging how refreshing.

I only qualified AAT last year so i am new to the profession just FYI.

You've not yet shown how the terms are illogical just claimed as such.

I've also seen from another post that you're not happy with the tutorage you've received (assuming I'm remembering correctly) could that be part of why it feels illogical, that the way it is initially explained is poor leading to more initial confusion?

I've already mentioned how I think the main source of confusion comes from the daily interactions with banks. When outside the accountancy profession you have no context for debit and credit when it appeared on statements so you perceive it in the way that suits you.

That would be credit is money you have and debit is money you don't it's only on either starting a business or going into accounting that this is put into the full context and you find out the statements are from the banks percepective and the credit is what they owe you and debit is what you owe them with the balance being your 'cash in bank'.

Gaz

So we appear to be level pegging. I've insulted you, and you have patronised me lol!

I think it best we agree to disagree about this. You are happy with the terminology you use and I'm happy with mine.

AAT_Team

That will do quite nicely. Let's leave it there shall we? Thanks.