Question

Explain the significance of credit in accounting.

Answer 1

Significance of credit in accounting are as follows:

1. Personal Account (Person/Organisation): When the account of a person/organisation is credited, it means:
   • The stated amount is payable to him.
   • Some amount receivable from him has been received.
2. Real Account (Assets): When an asset account is credited, it means the quantity/value of that asset has decreased.
3. Nominal Account (Expenses/Losses/Income/Gains): When a nominal account is credited, it means money has been earned or received.

Credit increases liabilities and income/gains. or Credit decreases assets and expenses/losses.