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Credit: Definition and Meaning
Definition
A credit is an entry on the right side of an account. Whether a credit increases or decreases an account depends on the type of account involved.
Why It Matters
Credits are part of the double-entry accounting system. Every recorded transaction must balance: total debits must equal total credits. Understanding credits helps business owners and accounting personnel read journal entries and investigate account changes.
In general, credits increase liabilities, equity, and revenue accounts, while they decrease asset and expense accounts. The practical treatment of a transaction depends on the accounts involved.
Example
When a customer pays an outstanding invoice, the company may debit cash and credit accounts receivable.
Related Terms
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