Credit

Definition

Credit is an accounting entry that either decreases assets or increases liabilities and equity on the balance sheet. It represents money that a company owes to another party.

5 Must Know Facts For Your Next Test

1. Credits increase liability and equity accounts while decreasing asset accounts.
2. In double-entry accounting, every credit entry must be matched with a corresponding debit entry.
3. Credits are recorded on the right side of T-accounts.
4. Revenue accounts typically have credit balances.
5. An important principle is that total credits must always equal total debits in the accounting ledger.

Review Questions

• What effect does a credit have on asset and liability accounts?
• Where are credits recorded in T-accounts?
• Why must total credits equal total debits in double-entry accounting?

Related terms

Debit:

An accounting entry that increases assets or expenses and decreases liabilities or equity.

Double-entry Accounting: A system of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account.

Ledger:

A book or other collection of financial accounts in which transactions are recorded.