Business, Legal & Accounting Glossary
Credit denotes the borrowing of money by one party from another which is returned at a specified time in the future. A contractual agreement is drafted that determines the amount of money to be credited to the borrower and the date on which the amount is to be repaid. The amount credited is determined according to the capacity of the individual or the company borrowing the money. Interest is also charged for the amount credited by the bank or lender.
Credit also refers to an accounting entry in the balance sheet of the company that increases the liabilities and equity or decreases its assets.
In this respect, Credit is an accounting entry on the right or bottom of a balance sheet. Usually an increase in liabilities or capital, or a reduction in assets. The opposite of credit is debit. Each credit in a balance sheet has a balancing debit. Credit has other usages, as in “You have to pay cash, your credit is no good.” Or “we will credit your account with the refund.”
Debit reduces the net income of the company according to its income statement, credit increases the net income.
Asset denotes the economic benefits that are gathered from a particular entity in the future through transaction made in the past.
He didn’t have enough cash to pay for a holiday this year, so he decided to take out a loan and purchase it on credit.
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This glossary post was last updated: 26th March, 2020 | 19 Views.