Why invoice payment deducts money from account?
Konrad
Member Posts: 1
I recently started using Wave and I'm testing it's features. So far I like it. But I cannot understand a few things, one of them why are invoice payments recorded as "debits" some times, and as "credits" other times, and why they subtract money from my account balance?
My case: I issued an invoice to customer using Wave, the customer paid by a check, I recorded the payment, it shows as "credit" but the amount of the check was subtracted from my account balance. Please see attached screenshot.
However, in the list of bank transactions, that same transaction is called "debit" and yet it adds (correctly) money to my total. See the second screenshot.
This makes no sense to me. Could someone explain?
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Comments
Hey @Konrad, this is due to Double-Entry Accounting, which appears incredibly non-intuitive at first. The gist of Double-Entry Accounting (or one of them anyway) is that certain account types are actually increased by debits, rather than credits, and vice versa.
In the first instance in your screenshot, your Accounts Receivable (money owed to you) is decreased with credits because, as money as is credited to your account, the value of what is still owed to you is reduced. Asset accounts always work backwards to what I would say is commonly expected in that they are increased via debit and decreased via credit.
You can find out a little more information here as well: https://support.waveapps.com/hc/en-us/articles/208622086-Everything-looks-backwards-A-debits-credits-overview
Or even more here: https://www.accountingcoach.com/bookkeeping/explanation/3