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What is 'Credit'
Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a future date, usually with interest. Credit also refers to an accounting entry that either decreases assets or increases liabilities and equity in the company's balance sheet. In addition, in the company's income statement, a debit reduces net income, while a credit increases net income.
ABANDONING 'Credit'
The credit also refers to the creditworthiness or credit history of a person or company. For example, someone may say, "You have a lot of credit so you do not worry about the bank rejecting your mortgage application." In other cases, the credit refers to a deduction in the amount owed. For example, imagine that someone owes your credit card company $ 1,000, but returns a purchase worth $ 300 to the store. He receives a credit in his account and then owes only $ 700.
Types of credit
There are many different forms of credit. When banks offer their customers car loans, mortgages, signature loans and lines of credit, those are all forms of credit. Essentially, the bank has credited money to the borrower, and the borrower must return it at a future date. For example, when someone makes a purchase at your local mall with your VISA card, your payment is considered a form of credit because you are buying goods with the understanding that you must pay them later.

However, loans are not the only form of credit. When providers provide products or services to an individual but do not require payment until later, that is a form of credit. For example, if a restaurant receives a truck full of food from a vendor, but the vendor does not demand payment until a month later, the vendor offers the restaurant a form of credit.

Credits in financial statements
In accounting, a credit is an entry that records a sum that has been received. Traditionally, credits appear on the right side of the column with the debits on the left. For example, if someone keeps track of your expenses in a checking account record, records the deposits as credits, and records the money spent or withdrawn from the account as debits.

In addition, if a company purchases something on credit, their accounts must register the transaction in several places of their balance. To explain, imagine that a company purchases merchandise on credit. After the purchase, the company's inventory account increases by the amount of the purchase, adding an asset to the company. However, your field of accounts payable also increases by the amount of the purchase, adding a liability to the company.