In normal Language the meaning of credit, we have learned as the amount payable to someone. In Accounting credit means subtracting some amount form the account.
Meaning of Credit: –
It is adding an amount of cash or fund into the owner’s equity, liabilities or income accounts and subtracting from the expenses or assets accounts. The word Credit is also abbreviated as “Cr.” It is always operated opposite to the Debit. It is always shown on the Right Side of the ledger accounts.
Affect of Credit on accounts: –
The Credit, affect the accounts as per their type or nature. These are two types shown below: –
- The Increase in Balance
- The Decrease in Balance
The increase in Balance: –
The balance of all types of liabilities (owner’s equity) and income accounts will be increased by the Credit amount. Like if Sundry Creditor a/c has a balance of 10,000/-, Suppose if the company/firm purchases goods from their vendor on the credit of 1,000, then it will be Credited to the Sundry Creditor’s account, So the balance of Sundry Creditors account will be 11,000/-.
| The Credit balance of Sundry Creditor Account | -10,000 |
| Less: – Amount of Credit | -1,000 |
| Total Balance (Minus: Minus = Plus) | -11,000 |
Note – Credit balance is also known as a negative balance. All liabilities always have a credit balance.
The decrease in Balance: –
The balance of all types of assets and expenses accounts will be decreased by the debit amount. Like if Bank a/c has a balance of 7,000/-, Suppose if the company/firm paid a Salary of 1,000, then it will be credited to the Bank account, So the remaining balance of the Bank account will be 6,000/-.
| The Debit balance of Bank Account | 7,000 |
| Less: – Amount of Debit | -1,000 |
| Total Balance(Plus: Minus = Minus) |
6,000 |
Note – Debit balance is also known as a Positive balance. All assets always have a debit balance.
What is Credit Balance: –
If the Credit side of an account exceeds the Debit side, the account is said to have a “Credit balance” to the extent of such difference which is put on the Debit side of the account in order to make the totals of the two sides equal and against this amount, the words “By balance C/d” (C/d means carried down) is written in the particulars column. This balance is brought down on the Credit side while opening the account for the next period and the words “To balance B/d” (B/d Means Brought down) are written in the particulars column.
What is Credit Note: –
The Credit Note is the document received by the seller of goods from the buyer against the return of goods which he had purchased from the seller. It is also a document that consists of information on the debited amount, reasons for Debit, Invoice number & date, and description of goods.