Credit
Credit is a contractual agreement where one party lends a certain amount of money to the other party, on the basis of trust. In this process, the borrowers agree to repay it on a future date to their lenders. Most of the times, the goods or money borrowed in this process is returned along with an interest. Credit is also the creditworthiness of an individual or a company, based on your earlier repayments to other lenders.
Credit in Accounting
In accounting, credit is an entry that either decreases the value of assets or increases the value of liabilities. While entering any financial transactions into records, credit appears on the right side and debit falls on the left side of an account. For example, if there are goods purchased on credit then the purchased goods will be added to the asset of the company in the form of an increase in the stock by that amount.
Types of Credit
Credits are of two kinds - secured and unsecured credit. Secured credits are lent in return of collateral (any valuable asset), which is to be returned to the borrower after successful repayment of the loan amount.
Unsecured credits are the loans that are granted without taking any collateral from the borrowers. Such credits are of higher risk for the lenders and hence come with excessively high rates of interests for the borrowers.
References:
1. Wikipedia https://en.wikipedia.org/wiki/Credit
2. Investopedia https://www.investopedia.com/terms/c/credit.asp
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