What is the meaning of Credit in Accounting

Meaning of Credit

Meaning of Credit 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.

We have explained the meaning of Credit with the help of the following points: –

Affect of Credit on accounts: –

The Credit, affect the accounts as per their type or nature. These are two types shown below: –

  1. The Increase in Balance
  2. The Decrease in Balance

1. The increase in Balance: –

The balance of all type 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 purchase goods from their vendor on credit of 1,000, then it will be Credited to the Sundry Creditor’s account, So the balance of Sundry Creditors account will be 6,000/-.

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.

2. The decrease in Balance: –

The balance of all type 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 company/firm paid Salary of 1,000, then it will be Credited the Bank account, So the remaining balance of 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) is 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 which consists of information of debited amount, reasons for Debit, Invoice number& date and description of goods.