Help in understanding a basic accounting principle?

Question

An entry which increases an asset account is called a debit.' So if my bank account is my asset account, when I debit money, money actually goes out so it is a 'decrease'. But the above statement has it the other way round. Kindly help me understand this.

Answer 1

To understand why this occurs, you have to consider how the accounting works from the bank's perspective. When a customer deposits cash at a bank, the bank receives cash (Asset) and incurs a payable (liability). The entry might look like

Cash (Dr) -> $100

Interest-Bearing Deposits (Cr) -> $100

Because of how the bank records the transaction, the bank views a credit to your account as an increase, because the bank's liability is going up due to a credit entry by the bank. Similarly, a debit entry by the bank would flip the above entry. The bank's cash balance would decline, leading to a credit to the Cash asset, and their liability would also decline, which requires a debit. Whether you are withdrawing the money yourself, or you're sending a payment to a third-party, both result in the debit or decline to the bank's liability for your account.