The credit is the part of the accounting entry where increases in liabilities , equity and income and decreases in assets and expenses are recorded .
It is used in double-entry accounting , where the credit has its counterpart to the debit , which is the left part of the accounting account. The amount that is reflected in the credit must be the same as the debit.
As can be seen in the following image, the credit is represented on the right side of the accounting entry:
Components of the credit
The credit includes three concepts:
- Accounting account number: itis necessary to indicate the accounting account number that is registered. Each country has a chart of accounting accounts where the accounts of the General Accounting Plan are coded numerically.
- Name of the accounting account: itis necessary to indicate the name of the accounting account that is registered, together with its number. The name of the account is optional, since in many countries it is sufficient to indicate the account number.
- Amount of the operation:to the right of the number and name of the account, it is necessary to indicate the amount of the operation that affects each accounting account.
In the credit you can include several accounting accounts, as can be seen in the following example:
Codes 700 and 477 refer to the account number; the names “ Sale of merchandise ” and “VAT charged” refer to the name of the account; and numbers 1000 and 210 refer to the amount of the operation. This accounting entry is incomplete, as it would be necessary to record the counterpart in the debit.
What is recorded in the credit?
When an accounting event occurs, an accounting entry must be registered. Depending on the nature of the operation, increases or decreases of the items must be recorded in debit or credit. In credit, the following types of operations are recorded:
- Increases in liabilities, equity or income . Also included are operations in which some liability or net worth or some income account is registered.
- Decreases in assetor expense items . Also included are operations in which any asset or expense account is written off.
General Ledger: the credit balance
In the General Ledger are reflected all accounting accounts registered by a company. These accounting accounts may be registered in several accounting entries and, in turn, may have entries both in debit and credit. The account balance is obtained by the difference between the total amount of debit and credit. When the amount of the credit is higher than the debit, it is said that the accounting account has a credit balance.
We will give an illustrative example: the accounting account (700) Sale of merchandise, has several records in different accounting entries. There are annotations for the amount of 100, 300 and 250 in the credit, and an entry for the amount of 50 in the debit. The balance of this account is 600, since it is the difference between credit (a total of 650) and the debit (a total of 50). The balance is creditor because the amount of the credit is higher than the debit. Graphically it would be represented as follows: