Understanding Credit and Debit Messages When Depositing Money at the Bank

Have you ever made a deposit at the bank and received a message that says 'Credited'? Ever wondered what that means? Understanding the banking terminology is crucial for managing your finances effectively. This article will explain the concepts of 'Credited' and 'Debited' messages, as well as provide insights into the underlying accounting principles.

Banking Terminology: 'Credited' and 'Debited'

When you make a bank deposit, the type of message you receive is based on the nature of the transaction:

1. Credited

The message 'Credited' indicates that funds have been added to your account. For example, when you deposit money into your account, the bank system records the transaction as a credit. This action increases your account balance, making you indebted to the bank for the amount deposited.

2. Debited

Conversely, a 'Debited' message indicates that funds have been taken out of your account. This typically happens when you withdraw money or make a payment from your account, reducing your balance. Essentially, the bank is reducing its liability to you.

Behind the Scenes: The Accounting Perspective

The terms 'credit' and 'debit' can be confusing at first glance, but they are closely tied to the double-entry accounting system. In accounting, credits increase your assets or liabilities. When you make a deposit, it results in an increase in your assets (such as cash in your bank account) and a corresponding increase in the bank's liabilities to you.

Assets and Liabilities

Let's delve deeper into the accounting principles:

When you deposit money in your account, it is a credit to your asset account, increasing your asset balance. At the same time, the bank's cash balance account is debited, reflecting a reduction in the bank's liabilities.

When you withdraw money or make a payment, it is a debit to your asset account, reducing your asset balance. The bank's cash balance account is credited, reflecting an increase in the bank's liabilities to you.

Debit Card Operations

A debit card works similarly but in the opposite way. When you use a debit card to make a payment, it results in a debit to your checking account, reducing your asset balance. The bank's liability to you also decreases as a result of this transaction.

Personalized Notifications

Banks often send notifications via SMS for every transaction to keep their customers informed. If you want to receive these messages, you may need to submit a signed form of authorization, typically a 'Form Mandate', to opt-in for SMS notifications. This ensures that you receive timely and accurate information regarding your account transactions.

Conclusion

Understanding the terms 'Credited' and 'Debited' is vital for managing your finances effectively. By knowing the underlying accounting principles and the significance of these terms, you can better grasp the mechanics of banking transactions and improve financial literacy.