What Is a Credit in Accounting?
Definition, the credit rules, and worked examples, explained in plain English.
Home › Accounting Glossary › Credit
| Also written as | Cr |
|---|---|
| Side of the account | Right |
| Opposite of | Debit |
| Level | Beginner |
| Topic | Financial accounting · Bookkeeping |
Credit in plain English
A credit is not “good” and it does not always mean money coming in. It is simply the right side of an account. Whether a credit increases or decreases a balance depends on the account type. Every transaction has at least one credit and one debit, and the totals always match.
The credit rules
| Account type | A credit… | A debit… |
|---|---|---|
| Liabilities (loans, payables) | Increases | Decreases |
| Equity / capital | Increases | Decreases |
| Revenue (sales, fees) | Increases | Decreases |
| Assets (cash, equipment) | Decreases | Increases |
| Expenses (rent, wages) | Decreases | Increases |
Worked example
The owner invests 10,000 in the business bank account. Cash (an asset) goes up, so it is debited. Capital (equity) goes up, so it is credited.
| Account | Debit | Credit |
|---|---|---|
| Cash | 10,000 | |
| Capital | 10,000 | |
| Total | 10,000 | 10,000 |
Second example: the business sells services for 800 in cash. Debit Cash 800 (asset up) and credit Service revenue 800 (revenue up).
- Believing a credit always increases a balance. A credit to Cash or to an expense account decreases it.
- Mixing up bank terms with bookkeeping. A bank “credit” to your account increases your balance because the bank now owes you more. In your own books that deposit is a debit to Cash.
Remember LER: Liabilities, Equity and Revenue are increased by credits. DEALER (Dividends or Drawings, Expenses, Assets) are increased by debits.
Quick check
1. Which side of an account is the credit side?
The right side.
2. A customer pays you 500 for services. Which account is credited?
Service revenue is credited (revenue increases) and Cash is debited (asset increases).
3. Does a credit to an asset account increase or decrease it?
It decreases the asset. For example, paying cash out credits Cash.
Frequently asked questions
Is a credit an increase or a decrease?
It depends on the account. A credit increases liabilities, equity and revenue, and decreases assets and expenses.
Does credit mean money coming in?
Not necessarily. Credit only means the right side of an account. Paying cash for rent credits Cash, which is a decrease in an asset.
What is the difference between credit and debit?
They are opposite sides of an account. Debits go on the left and credits on the right, and total debits must equal total credits.
What is a credit balance?
An account has a credit balance when its credits exceed its debits. Liability, equity and revenue accounts normally have credit balances.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.