Financial Accounting

In the context of personal banking or financial accounting, a credit is an entry recording a sum that has been received. Traditionally, credits (deposits) appear on the right-hand side of a checking account register, and debits (money spent) appear on the left.

From a financial accounting perspective, if a company buys something on credit, its accounts must record the transaction in several places in its balance sheet. To explain, imagine that a company buys merchandise on credit.

After the purchase, the company’s inventory account increases by the amount of the purchase (via a debit), adding an asset to the company. However, its accounts payable field also increases by the amount of the purchase (via a credit), adding a liability to the company.