In accounting there are several meanings of a credit.

In the context of debits and credits, a credit is an entry made on the right side of an account. For example, accountants will state that a payment on a company’s outstanding bills will be recorded with a credit to Cash and a debit to Accounts Payable. Accountants also state that a credit balance is the likely balance for liability and revenue accounts.

A credit is also used when a customer returns some recently purchased goods. For example, the seller might tell the customer that a credit will be given for the returned goods. The seller then processes a credit memo which will be recorded as a credit in the Accounts Receivable records.

The word credit, as opposed to a credit, could refer to the terms of a sale in which the customer is allowed to pay at a later date. Credit could also refer to a company’s ability to borrow money.

Learn more about Debits and Credits.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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