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
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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:
- Assets (Cash, Accounts Receivable, Supplies, Inventory, Land, etc.)
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.
