Credit (finance)
Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.
A similar usage is in commercial trade, where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager.
Credit is denominated by a unit of account. Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply.
Credit is also traded in the market. The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).
Credit is a formal bookkeeping and accounting term that comes from the Latin word credere, which means "to believe". The opposite of a credit is a debit. Credit is abbreviated Cr, while debit is abbreviated Dr.
A credit changes the balance of an account. Asset and expense accounts decrease in value when credited, whereas liability, equity, and revenue accounts increase in value when credited. This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales, the company will have credited a certain amount in revenue, and since credits are negative numbers, the balance grows more and more negative. An adjustment to revenue would need to be a debit, because its purpose is to bring the revenue totals closer to zero.
Credit as a financial term, used in such terms as credit card, refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.
A similar usage is in commercial trade, where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager.
Credit is denominated by a unit of account. Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply.
Credit is also traded in the market. The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).
Credit is a formal bookkeeping and accounting term that comes from the Latin word credere, which means "to believe". The opposite of a credit is a debit. Credit is abbreviated Cr, while debit is abbreviated Dr.
A credit changes the balance of an account. Asset and expense accounts decrease in value when credited, whereas liability, equity, and revenue accounts increase in value when credited. This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales, the company will have credited a certain amount in revenue, and since credits are negative numbers, the balance grows more and more negative. An adjustment to revenue would need to be a debit, because its purpose is to bring the revenue totals closer to zero.
Credit (accounting)
Credit is a formal bookkeeping and accounting term that comes from the Latin word credere, which means "to believe". The opposite of a credit is a debit. Credit is abbreviated Cr, while debit is abbreviated Dr.
A credit changes the balance of an account. Asset and expense accounts decrease in value when credited, whereas liability, equity, and revenue accounts increase in value when credited. This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales, the company will have credited a certain amount in revenue, and since credits are negative numbers, the balance grows more and more negative. An adjustment to revenue would need to be a debit, because its purpose is to bring the revenue totals closer to zero.
A credit changes the balance of an account. Asset and expense accounts decrease in value when credited, whereas liability, equity, and revenue accounts increase in value when credited. This distinction is somewhat counterintuitive, until the nature of those accounts is more closely scrutinized. For example, revenue is coded as a credit. After recording a day's sales, the company will have credited a certain amount in revenue, and since credits are negative numbers, the balance grows more and more negative. An adjustment to revenue would need to be a debit, because its purpose is to bring the revenue totals closer to zero.
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