Accounting is generally defined as analyzing, interpreting, planning and recording financial information. Financial managers use income statements, balance sheets and statements of cash flow to determine the viability of an organization. Computer accounting software has replaced general ledgers and journals, but a basic understanding of the older methods will assist in understanding a credit in an accounting report.

Personal Accounting

Without realizing it, most people use accounting on a daily basis. The process of deciding how to distribute weekly paychecks to make sure all monthly expenses are covered requires the use accounting. Some people implement a budget to breakdown income based on the amount of bills due and due dates.

Credit in Personal Finance

A credit in this case would be setting aside $185 for the electric bill and only having to pay $167.89. The difference, $17.11, is a credit and can be applied to next months electric bill.

Credit in Business Finance

Businesses record credits much the same way. An accounting report will display credits of customers who paid more than the actual amount due. The credit can be deducted from the next bill.

Journal

Transactions are entered into a journal. These transactions are then posted to a general ledger.

General Ledgers

General ledgers are broken down into the organization's chart of accounts, which consist of customers, suppliers and expense accounts and are assigned numbers. Transactions are entered based on the amount due to each chart of accounts. Should an account be overpaid, it will reflect a credit.

Source:

Century 21 Accounting 6th edition; Ross, et al.; 1995