Credit: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson
(Align with qualifications material.)
imported>Doug Williamson
(Re-group to bring related items together, and link with Credit risk page.)
Line 1: Line 1:
'''1.''' In relation to a bank account, a credit balance in the bank's books is one which stands in favour of the customer. 


The bank owes money to the customer.   
=== Repayable financial benefits ===
 
The provision or availability of loans or other repayable financial benefits by a bank or other lender.
 
An entity which lends money, or which provides goods or services on deferred payment terms, is 'extending credit' to its customer.
 
 
Credit includes borrowings, especially short term ones relating to particular goods or services.   
 
 
=== Creditworthiness ===
Credit strength, or 'creditworthiness', means an entity's ability and willingness to meet its financial obligations.


(Contrasted with a debit, or overdrawn, balance.)


=== Banking ===
==== Credit balance ====


'''2.''' An item paid into an account.
In relation to a bank account, a credit balance in the bank's books is one which stands in favour of the customer.


The bank owes money to the customer. 


'''3.''' Borrowings, especially short term ones relating to particular goods or services.
(Contrasted with a debit, or overdrawn, balance.)


So an entity which lends money, or which provides goods or services on deferred payment terms, is 'extending credit' to its customer.
==== Credit item ====
In banking, a 'credit' also means an item paid into a bank account.




'''4.''' Credit strength, or creditworthiness, means an entity's capacity and willingness to meet its financial obligations.
=== Book-keeping ===


In double entry book-keeping, every accounting transaction is recorded with both a Debit entry and a Credit entry in the accounting records. 


'''5.''' In double entry book-keeping, every accounting transaction is recorded with both a Debit entry and a Credit entry in the accounting records. 
==== Credit balances in book-keeping ====


Credit balances represent liabilities or income.
Credit balances represent liabilities or income.
Line 24: Line 38:




'''6.''' (CR). In double entry book-keeping a Credit entry is one made:
==== Credit entries in book-keeping ====
 
In double entry book-keeping a 'credit entry' is one made:


*To increase a credit balance; or
*To increase a credit balance; or
Line 31: Line 47:




For example, the book-keeping entry to recognise a cash expense is:
For example, the book-keeping entry to recognise an expense paid in cash is:


DR Expense
DR Expense
Line 42: Line 58:




'''7.''' ''Tax''.
=== Taxation ===
 
A tax credit.
 
 
'''8.''' ''UK tax loan relationship rules.''
Any profit or gain, for example interest income, arising from a loan relationship.


#A 'tax credit' is an amount which can be used to reduce a tax liability.
#Under the UK tax loan relationship rules, a 'credit' is any profit or gain, for example interest income, arising from a loan relationship.


'''9.''' Any amount in favour the holder of the credit, entitling them either to future goods or services without further payment (or for a reduced payment) or alternatively to a repayment in cash.


=== Non-repayable financial benefits ===


'''10.''' The provision or availability of loans or other credit by a bank or other lender.
A credit can also mean any amount in favour the holder of the credit, entitling them either to future goods or services without further payment (or for a reduced payment) or alternatively to a repayment in cash.




== See also ==
=== See also ===
* [[Acceptance]]
* [[Acceptance]]
* [[Cash terms]]
* [[Cash terms]]
Line 66: Line 77:
* [[Credit enhancement]]
* [[Credit enhancement]]
* [[Credit rating]]
* [[Credit rating]]
* [[Credit risk]]
* [[Credit score]]
* [[Credit score]]
* [[Creditworthiness]]
* [[Creditworthiness]]

Revision as of 14:58, 20 June 2015

Repayable financial benefits

The provision or availability of loans or other repayable financial benefits by a bank or other lender.

An entity which lends money, or which provides goods or services on deferred payment terms, is 'extending credit' to its customer.


Credit includes borrowings, especially short term ones relating to particular goods or services.


Creditworthiness

Credit strength, or 'creditworthiness', means an entity's ability and willingness to meet its financial obligations.


Banking

Credit balance

In relation to a bank account, a credit balance in the bank's books is one which stands in favour of the customer.

The bank owes money to the customer.

(Contrasted with a debit, or overdrawn, balance.)

Credit item

In banking, a 'credit' also means an item paid into a bank account.


Book-keeping

In double entry book-keeping, every accounting transaction is recorded with both a Debit entry and a Credit entry in the accounting records.

Credit balances in book-keeping

Credit balances represent liabilities or income.

(Debit balances represent assets or expenses.)


Credit entries in book-keeping

In double entry book-keeping a 'credit entry' is one made:

  • To increase a credit balance; or
  • To reduce a debit balance.


For example, the book-keeping entry to recognise an expense paid in cash is:

DR Expense

CR Bank

If the bank balance is already overdrawn, the CR Bank accounting entry for the payment will increase the overdrawn bank balance (liability) in the balance sheet.

But if the bank balance is currently an asset (DR balance in the account holder's records), the CR Bank accounting entry for the payment will reduce the positive bank balance (asset) in the balance sheet.


Taxation

  1. A 'tax credit' is an amount which can be used to reduce a tax liability.
  2. Under the UK tax loan relationship rules, a 'credit' is any profit or gain, for example interest income, arising from a loan relationship.


Non-repayable financial benefits

A credit can also mean any amount in favour the holder of the credit, entitling them either to future goods or services without further payment (or for a reduced payment) or alternatively to a repayment in cash.


See also

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Credit&oldid=12413’