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
Credits increase liability and equity accounts while decreasing asset accounts.
In double-entry accounting, every credit entry must be matched with a corresponding debit entry.
Credits are recorded on the right side of T-accounts.
Revenue accounts typically have credit balances.
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.