What is the meaning of a credit in accounting?

• A. An entry that increases assets
• B. An entry that decreases expenses
• C. An entry on the left side of a ledger
• D. An entry that increases liabilities

Answer: (D)

In accounting, a credit is defined as an entry that increases liabilities, among other things. When a company takes on more debt or owes money, this situation is reflected by a credit entry. The balance sheet equation—Assets = Liabilities + Equity—shows that when liabilities increase, either assets or equity must also change to keep the equation balanced.

In a double-entry accounting system, every transaction affects at least two accounts. For instance, if a company borrows money, the cash account (asset) would increase, and concurrently, the liabilities account for the loan taken would also increase, resulting in a credit to the liabilities account.

The other options do not accurately reflect the definition of a credit: increases to assets, decreases to expenses, and left-side entries pertain more to debits in the accounting process rather than credits. Thus, recognizing that a credit can represent an increase in liabilities is fundamental to understanding how double-entry accounting operates and maintaining balanced financial records.