Did You Say Debit

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    DID YOU SAY DEBIT?Michel Thiry 1

    Abstract This paper, inspired by my seventeen years of teaching accounting, has a dual purpose: whilequestioning the relevance of some of the content of certain accounting textbooks, it also explores at length the concept of debit and credit, used as an example to illustrate the necessity to explain theunderlying principles as opposed to merely emphasizing how to apply accounting rules. In other words, questioning the validity of some textbooks excerpts with regard to debit/credit becomes a

    pretext to reflect on it. Consideration of this concept requires taking a look at the history of negativenumbers and at the origin of double entry bookkeeping. It will also make it clear that while rulesmust be learnt, at some stage the reason for them must be made clear; if this is not done it has littleeducative value (Russell, 1924, p. 164).

    Key Words : debit, credit, double entry bookkeeping, negative numbers.

    IntroductionAccounting as we know it today did not come

    into existence until the Italian Renaissance aperiod of great cultural changes in Europe,which, stretching from the late 1300s until theearly 1500s, marked the transition betweenMedieval and Early Modern Europe. As a tradepractice, however, accounting is as old ascivilization and can be traced as far back as 3200BC. It has played a significant role in the worldseconomic and cultural development.

    For example, it is accountants who inventedwriting (Parker, 1990). Around the 3 rd centuryBC, the ancient Sumerian bookkeepers usedsmall clay balls called tokens to count and keeptrack of ones existing wealth. From the simpletokens, complex tokens evolved around 3700 BC.Later, with stylized signs, all information couldbe recorded directly on tablets, eliminating theneed for tokens. From thereon, writingdeveloped - invented by scribes serving asaccountants (Giroux, 2008) .

    Accountants developed money and banking.They were instrumental in developing the capitalmarkets so essential to capitalism. "Accountswere used in certain ways and for certainpurposes, and had the effect of rationalizing and

    1. Michel Thiry, Ph.D. is a lecturer at AssumptionUniversity.

    methodizing business life." (Parker, Op. Cit. p.100) With the notion of profit reduced to anabstraction defined by scientific accounting, theconcept of capital was possible. Accountingbecame a scientific instrument in the hands of entrepreneurs in the rational pursuit of profit.

    Accountants also created the double-entrybookkeeping system that fueled the ItalianRenaissance. As emphasized in various degreesby economic historians, systematicbookkeeping (i.e., double-entry bookkeeping)has been essential to the development and rise of modern capitalism" (Yamev, 1949). "CitingRobertson (1933), Yamev concluded thatdouble-entry bookkeeping, to the extent that itwas adopted in practice, "could bring order toand systematize such records [records of transactions] and so contribute towards the'methodizing' of business life." (Ibid p. 110)

    One of the fundamental accounting conceptsis that of debit and credit. At the core of theteaching of accounting, it is invariably part of ones learning experience and, as such, oftenassociated with painful learning moments. Infact, few terms turn out to be as deceptive asdebit and credit whose lay meaning, whichwe all easily understand, has little to do with itsaccounting signification. This author surmisesthat some of the difficulties encountered bystudents and the often-made claim that neither

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    the training nor the education are satisfactory -may also have to do with some of the textbooksapproach to it, which often fails to emphasize itsunderlying principles, as will be shown in partone.

    Solely teaching accounting methods hasmerits only to the extent that it is combined witha presentation of the underlying principlesthemselves. It is critical indeed that teaching notmerely come down to technical acquisition andengenders instead educationally developedindividuals with a sophisticated capacity toenquire, reason, conceptualize and evaluate(Gray, 1994). While, for didactic purposes, thispaper will focus on debit and credit, theapproach advocated by Gray should apply acrossthe board to all accounting principles if studentsare not to experience intellectual and moralatrophy (McPhail, 1996).

    Looking back at the origins of the debit/creditconcepts through the prism of negative numbers,parts two and three will thus elaborate on itsdevelopment and expound its underlyingprinciples. Part four will then address the issueof why the terms debit and credit are usedand at the implications thereof. This paper willconclude by reiterating the need for a teachingapproach that incorporates the vast accountinglore that of debit and credit in particular - as itwill enhance autonomous thinking, ensure fullcomprehension of the material, and provide abroader perspective on the subject matter.

    1. Introducing the Concepts of Debit and CreditLets start with some excerpts from

    accounting textbooks on the notions of debitand credit. In response to the question whatare debits and credits? one book stated, forinstance, that accountants use these termssimply to describe the left and right sides of aledger account. An amount recorded on the leftside of a ledger account is called a debit or adebit entry. Conversely, an amount entered onthe right side of an account is called a credit or acredit entry (Meigs, 1990). Such pragmatic,directional references to explain a sophisticated -

    and central - accounting concept are not isolatedand in fact appear in a number of textbooks. Inone of those, for example, it is stipulated thatthe terms debit means left, and credit meansright. They are commonly abbreviated as Dr . fordebit and Cr. for credit. These terms aresupposed to be directional signals: they indicatewhich side of a T account a number will berecorded on. Entering an amount on the left sideof an account is called debiting the account;making an entry on the right side, crediting theaccount (Weygandt, 2006).

    Another one, promisingly starting with asomewhat more sophisticated approach,nonetheless ended up resorting to the sameubiquitous directional explanation: The dualeffect of a business transaction is recorded bymeans of the later double-entry bookkeepingsystem [] The way in which the double-entrysystem operates in the United Kingdom is to usethe left-hand side of the account for debits andthe right-hand side of the account for creditswhereas he double-entry system in the UnitedStates has the debits on the right-hand side andthe credits on the left-hand side (Chadwick,1996).

    Sure enough, as Fleming (1998) pointedout, the terms debit and credit can beconfusing, probably because they have beenadopted into everyday language and are used inways which are inconsistent with their utilizationin accounting. Indeed, students beginning acourse in accounting often have erroneousnotions about the meanings of the terms debitand credit. For example, to some peopleunacquainted with accounting, the word creditmay carry a more favorable connotation thandoes the word debit. Such connotations have novalidity in the field of accounting (Meigs, 1990).Clearly, for some textbook writers, such a highrisk of confusion leads to and justifies -pragmatic explanations. After cautioningstudents about the misleading usage of theseterms, Meigs (Ibid.), for instance, feelscompelled to use the notions of left and right toelaborate on the meaning of debit and credit:

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    Accountants use debit to mean an entry on theleft- hand side of an account, and credit to meanan entry on the right-hand side. Thus, debit andcredit simply mean left and right without anyhidden or subtle implications.

    Another explanation often encountered intextbooks is to analogize these two terms toverbs. A few examples will bring this pointhome. Accountants also use the words debitand credit as verbs. The act of recording a debitentry is called debiting the account; recording acredit entry is called crediting the account (Ibidp. 43). The first thing to realize is that they are

    just words. Just as the words increaseand decrease cause no confusion, neithershould debit nor credit (Fleming, 1998). Thelist of accounting textbooks using suchdirectional and verbal references is long andquotes from them on the concept of debit andcredit could fill many pages. While thispragmatic definitional approach can undoubtedlybe helpful, it does not, however, provide athorough understanding of these fundamentalnotions since it fails to adopt a historicalmathematical approach to explain them. Specifically resorting to the history of mathematics and, in particular, the initialrejection of negative numbers by mathematicianswill provide a clearer understanding of theseconcepts. In other words, contrary to what thesetextbooks assert, it is also necessary to tackle thestudy of debit and credit in terms of increaseor decrease and not simply in directional terms.Such an approach was adopted for instance byLin (1984).

    When referring to accounting terms, Lin doesnot use the terms debit and credit as such.Bound by the constraints of the Chineselanguage, he uses two characters instead: and

    ( jie and fang ), which literally translate as the party (fang) who borrows (jie). However, theterm (jie) itself can be used to mean both tolend or to borrow. It is therefore also used inthe sense of ( jiechu ), which literallytranslates as the party who lends . By extension,

    ( jiefang ), then becomes synonymous with

    that which is owed to the company or, inaccounting parlance, with accounts receivable.

    On the other hand, and (dai and fang )refer to the credit side; (dai) is employed inthe sense of ( jieru ), which translates as toborrow from. Again, by extension, (daifang ), then becomes synonymous with thatwhich is owed by the company or, inaccounting parlance, with accounts payable.

    Lin also specifies that any increase in assetsand expenses is a debit and any decrease thereof a credit, and that any increase in liablity andrevenue is a credit and any decrease thereof a

    debit. In other words, any increase/decrease, forexample, in revenue will be recorded as acredit/debit, and any increase/dececrease inexpense as a debit/credit. As we shall see later,this approach to these fundamentals of accounting can be traced back to Pacioli (14461517) , widely considered to be the father of double entry bookkeeping. However, prior toexploring his contribution, we first need to gofurther back and consider the evolution of negative numbers and their rejection by

    mathematicians in particular and also theconcomitant emergence of a system closely akinto double-entry bookkeeping.

    2. The Historical Origin: The Rejection of Negative Numbers

    The historical origin of the use of the wordsdebit and credit in accounting goes back tothe days of single-entry bookkeeping in whichthe chief objective was to keep track of amountsowed by customers (debtors) and amounts owed

    to creditors. Debit, is Latin for he owes andcredit Latin for he trusts. Thus, debiting acustomers account simply meant recording theamount that a customer owed a vendor andcrediting that vendors account, recording anamount for which the vendor (creditor) trustedthe customer (Grant (1964).

    Wondering why we have debits andcredits, Peeters and Emery (1978) concluded,after surveying the history of negative numbers:apparently, because there was no negative. In

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    other words, what is argued is that the termsdebit and credit were created out of a needfor a bookkeeping system free of negativebalances.

    Typically, the fundamental equation of thebalance sheet of a given company is written as:

    A (assets) = L (liabilities) + OE (owners equity) .However, it can also be expressed as A (L +OE) = 0 ; the latter equation explicitly illustratingwhat is commonly referred to in textbooks asliabilities being the future sacrifice of assets.

    The use of the traditional equation A = L +OE wherein both the debit balance and creditbalance accounts are positive, developed as theresult of mathematical considerations. Thisbelief is based on the idea that mathematiciansdid not accept the concept of negative numberswhen bookkeeping methods were beingdeveloped (Peeters, 1978). Indeed, negativenumbers were used in commerce long beforemathematicians accepted them (Ijiri, 1989)."Though [negative numbers] had become knownin Europe through Arab texts, most 16 th and 17 th century mathematicians did not accept them asnumbers, or if they did, would not accept themas roots of equations (Kline, 1972).

    One of the first algebraists to accept negativenumbers was Thomas Harriot (1560-1621), whooccasionally placed a negative number by itself on one side of an equation. Thus, medievalmerchants accepted the use of negative numbersonly as something that was totally different frompositive numbers, necessitating entries indifferent columns (Kline, 1972). Still, in the veryearly 1800s, negative numbers had not yetacquired their full status as numbers. InGometrie de la position (1803), for instance,Lazare Carnot (1753-1823) wrote that to reallyobtain an isolated negative quantity, we shouldsubtract an actual quantity from zero, in otherwords, clear away something from nothing; animpossible operation [] the usage of negativenumbers leads to erroneous conclusions(yvan.monka@ac-strasbourg.fr). Acceptance of negative numbers by mathematicians was not tocome until 1821 and Augustin Louis Cauchys

    definition of relative numbers as numerical partspreceded by the + or signs in his Coursdanalyse de lcole royale polytechnique, aprominent and leading French institution of higher learning. Yet, by that time, negativenumbers had long been accepted in thecommercial sphere.

    Chinese were the first to use negativenumbers for commercial purposes (Cajori,1919).As described in ( Nine Chapters on

    Arithmetics) compiled by generations of scholarsfrom the tenth to the second century B.C.,Chinese merchants used red rods for positivenumbers to record what they were owed byothers and black ones for negative numbers torecord what they owed others, as early as thefirst century A.D. A long evolution of the Greek concept of numbers then ensued. For them,numbers represented quantities essentiallyassociated with substance (so-called res ):Quantity and quality, space and timedeterminations do not exist in and for themselvesbut merely as properties of absolute realitieswhich exist by themselves. The category of relation especially is forced into a dependent andsubordinate position by this fundamentalmetaphysical doctrine of Aristotle (Cassirer,2003).

    Next, the concept of pure numbers as havinga symbolic signification in abstract mathematicsemerged, particularly under the influence of Vite (1540-1603). A mathematician well-known for his work on mathematical symbolism,he started to a...