In accounting, credit refers to an accounting entry that increases a liability or equity account, or decreases an asset or expense account. A credit is the opposite of a debit. When you make a credit card purchase, for example, you are effectively making a loan to the merchant. The merchant records a sale on its books and your bank records the loan as a liability on its books. Over time, as you repay the loan (plus interest and fees), the accounting entries are reversed. Debit and credit always go together in equal and opposite pairs.
When you record a transaction in your accounting ledger, you will need to decide whether it should be recorded as a debit or credit. In general, debits are used to record increases in assets and expenses, while credits are used to record increases in liabilities, equity, and income. However, there are a few exceptions to this rule. For example, when recording the purchase of a fixed asset (such as a piece of equipment), you would debit the asset account and credit the accounts payable account.
The accounting equation is the foundation of double-entry accounting. This equation states that assets must always equal the sum of liabilities and equity. In other words, if one side of the equation increases, the other side must also increase by an equal amount. For example, if you make a credit card purchase for $100, your assets will increase by $100 (the amount of the purchase) and your liabilities will also increase by $100 (the amount of the loan).
When recording a transaction, you will need to decide which accounts to debit and credit. In general, you should debit the account that increases and credit the account that decreases. However, there are a few exceptions to this rule. For example, when recording the purchase of a fixed asset (such as a piece of equipment), you would debit the asset account and credit the accounts payable account.