In finance, the term credit denotes a positive transfer of assets to an entity from a third party. Any incoming assets from external sources to an entity are credit transactions. All expenses and outgoing transfers, on the other hand, are debit transactions.
When used in relation to bank accounts, payment card accounts or other accounts managed by financial services providers, a credit occurs when assets are transferred into or “credited” to an account from third-party accounts, or deposited into an account by the account holder (via a cash deposit, for example). A debit occurs when assets are transferred out of or “debited” from an account to third-party accounts, or withdrawn by the account holder (as a cash withdrawal, for example).
In accounting, the term credit is used in reference to all income, while the term debit is used in reference to all expenses.
Important: The term credit is also used to denote faith in the ability of an entity to pay for goods and services which are delivered in advance of payment or to repay loans (see also: creditworthiness and on credit). This definition is used in the term credit card. Less commonly, the term credit is used synonymously with the term loan. Take care not to confuse either of these definitions of credit with the basic definition of the term credit, which means a positive, incoming transaction.
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