Your uncle has just started a business and comes to you with a question. "I'm confused. I have a memo included with my bank statement indicating a $45 service charge for printing new checks. Since you're an accounting major, maybe you can explain to me
why they call it a ‘debit memorandum,' even though they are deducting this amount from my account. When I took Accounting in school, I could have sworn that a decrease in the Cash account would be a credit and not a debit. REQUIRED: In a short paragraph, explain this issue to your uncle.
I agree that it is a bit confusing. You see the meaning of a debit or a credit depends on which company is concerned. To the bank, a company's checking account is a liability. Therefore, when a bank deducts a service charge from a company's account, it is reducing its liability to the company. A liability is decreased with a debit. Therefore, banks refer to charges to a company's account as debit memoranda.
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