To understand what the word “Credit” means in accounting, we must take into account the different variables. Its definition depends directly on the context used. It is important to specify some historical data to illustrate. In this way we conclude what an accounting credit means.
In the Antiquity the commercial activity that was realized through a barter. A dozen apples were interchangeable for a dozen bananas. It was mostly from products obtained from the crops. However, the crops were not produced at the same time. For the fulfillment of the pact in the future, one begins subtly to speak of a credit based on good faith.
Reliable but not paid
In our days, bartering has been replaced by what we know in popular slang as “Fiado”. This is another way to make use of the term “Credit.” This happens when the trust relationship between the store owner and the buyer, allowed the latter to buy the products without paying for them instantly. There was already a term agreed by both parties, which is nothing more than buying on credit paying in installments.
A simile of the “Fiado” are purchases made through credit cards. The agreement to pay is directly with the bank with which it has been contracted. Not with the owner of the product or service being acquired, which means that the relationship of trust is directly with the Bank.
With the evolution of our societies and the use of technology, financial systems have emerged through banks. We are already familiar and have gradually led us to denature the real meaning of the word “credit” in Accounting. Hence we think of a credit as something positive by not understanding its true meaning. At the end it affects the accounting balance.
What is an Accounting Credit?
In the accounting system, credit is also understood as “credit.” The function in financial transactions is to reflect that operation that implies a reduction in the asset. As a result, there is an increase in liabilities, affecting accounting balances.
In accounting, proper handling of the terms “debit” and “credit is essential. In order to keep the accounts of a company or company, in the case of credits it is important to be clear that when we talk about this type of account it refers to liabilities, profits, income and capital, this in terms of equity. On the other hand, the accounts payable, the documents payable and the unearned income must also be reflected in the credits account.
There is a correct way to locate the accounting credit in the control and recording systems of expenses and income. This form is based on the right side of the format used by the counters called “T account”. Since the credits represent an increase in accounts of a passive nature or equity and also represent a record of increase in the income account of a company. On the other hand, a credit implies a decrease in accounts of an active nature.
Classification of Accounting Credits
Those who determine equity and reflect an increase in it are considered as accounting credit . In the different financial operations carried out as a result of the commercial activity, to which the owners of the companies, companies or holder are entitled, which may be:
– Real: those that represent assets, rights or obligations that determine the patrimony. This corresponds to assets controlled by tangible tangible assets. An example of this are goods, Buildings, Land, Equipment, etc. Also intangible material goods such as patents and concessions. It is also represented by the credits in favor as the accounts receivable.
– Nominals: which corresponds to the income and profits obtained from the provision of a service. Also sale of a good, in order to increase equity.
We can conclude then that an accounting credit may be positive or negative. Whenever you increase a credit account or decrease a debit account. All assets that increase income and decrease expenses will be considered positive. They will be considered negative if it is the opposite.