A credit is the right-hand side of every accounting entry. Like a debit, what it does depends on the type of account it affects. It is distinct from a payroll "tax credit", which is a different concept entirely.
What it means
A credit increases liability, income and equity accounts and decreases asset and expense accounts. Earning revenue credits an income account; taking a loan credits a liability. As with debits, "credit equals money in" is a misconception - it depends on the account. Credits are abbreviated Cr.
Where it fits in
In a payroll journal, paying staff credits the bank (reducing an asset) and credits the liability accounts for PAYE and UIF owed, while the salary expense is debited. Every credit is matched by an equal debit so the entry balances.
Key rules
- The right side of an accounting entry, abbreviated Cr.
- Increases liabilities, income and equity.
- Decreases assets and expenses.
- Not the same as a tax credit, which reduces tax owed.
