What is the definition of a credit in accounting?

In accounting, a credit refers to an amount that decreases what is owed. This is grounded in the double-entry bookkeeping system, where every financial transaction impacts at least two accounts. When a credit is recorded in an account, it usually indicates a decrease in assets or an increase in liabilities or equity, depending on the nature of the account.

For example, if a business pays off a liability, it credits the liability account, reducing the amount owed. Similarly, when a customer pays for their purchase, the business recognizes a credit in its revenue accounts while recording a debit in cash, which increases the cash balance. Thus, understanding that a credit signifies a reduction in obligations or an increase in equity is fundamental for accurate financial reporting.