A credit account is among the most essential factors of financial accounting. In the double entry book keeping system every single deal has two parties where one who is getting the advantage is credited while another one is debited. In a financial deal credit account is documented on the right hand side of the ledger accounts. To figure out which of the accounts would be credited could be done simply by three golden rules of accounting for Personal Accounts, Real Accounts and Nominal Accounts. In the real accounts no matter what goes out is credited, for personal account whomever is the giver is credited and for nominal account all of the income and gains are credited. In the easiest of form credit means the right hand side which affects the ledger balance. The equations describes all the things by itself Assets = Liabilities + Equities. Thus anytime any assets is reduces it would be credited by that quantity, and if there is any improve in liability then this liability will likely be credited by that amount. If there may be rises in the income we will credit the income amount in the financial accounts, and if there is any kind of fall in the expenses we will credit the expenses amount. If we witness any increment in the share holder equity capital we may credit shareholder equity by the similar amount.
To realize credit more lets take one example to obviously know what type of accounts are credited and on what situations. If Rent of $100 is paid, right here two accounts are impacted one is rent and some other is cash, as rent is by cash. In this instance cash account is going to be credited as cash is an assets and it is reducing so we will credit cash account and all together rent account shall be debited as rent is expenses and it is increasing. Let’s look into one more example. A company borrowed $3000 from a bank. In this situation Loan is the liability and is growing so we will credit the loan amount by $3000 and as cash is growing we will debit the cash account. Therefore in easier conditions we may say that any increase in the liability and any decrease in the asset could be credited. This really is what credit means in the accounting conditions. In non-accounting terms credit has various meaning, where it is described as company or lender that provide amount to the borrower and borrower guarantees to pay the loan amount as well as interest in any upcoming date. The term credit is also used in regular business trade that approves the hold up in payment of goods that are offered. But this credit is limited to a person who has strong economic stability and good credit rankings.
Therefore we see that not only in accounting conditions the word credit can also be used in non-accounting conditions. Credit, in industry and finance, is a term used to indicate negotiations relating to the swap of money or other property on assurance of compensation, generally at a set future date.
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