Dictionary
Debitoor's accounting dictionary
Credit

Credit - What is a credit?

In accounting, credit is the negative side of a balance sheet account and the positive side of a resulting item

It’s never been easier to balance your credits and your debits with online accounting software Debitoor. Try it for 7 days free.

A credit is an outstanding amount that is due to a creditor by a debtor (borrower). In the accounting ledger, this is recorded on the right side of the balance sheet (negative) as it is a decrease in assets.

Crediting an account implies that there is a negative amount in that account.

As an increase in liabilities due to an increased amount in the accounts payable account, the outcome will be increased by a negative amount, balancing credits may be a bit confusing before getting a solid grasp of the so-called double entry bookkeeping principle.

The credit relationship

The individual or company that issues a credit is known as the creditor. Credit is given in exchange for a product or service given by the creditor to the debtor. Payment of the credit is expected in an agreed upon period of time.

An overview of credit in accounting

  • Crediting a debtor account implies that debt increases
  • Crediting an asset account implies that the assets are reduced
  • Crediting an income account implies that revenues increase
  • Crediting an expense account implies that the costs reduce

Accounts increased by a credit

A Credit will increase these accounts:

  • Liabilities (Notes Payable, Accounts Payable, Interest Payable, etc.)
  • Revenues (Sales, Service Revenues, Fees Earned, Interest Revenues, etc.)
  • Gains (Gain on Sale of Assets, Gain on Retirement of Bonds, etc.)

Accounts decreased by a credit

A Credit will decrease these accounts:

Debitoor and credits

Online accounting software such as Debitoor automatically keeps your accounts balanced as long as you keep your data up-to-date. Customer statements allow you to quickly view any overdue amounts taken on credit.

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