Credits and debits are the foundation of modern business practices. To put it simply, a credit is an increase in an account’s balance and a debit is a decrease in the same. However, when applied to accounting, the definitions become more complex as they reflect different types of transactions.
A credit represents something that was added to an account – such as money received, goods received with an invoice or services rendered. When a credit is recorded in a journal entry, it increases the total balance of the account.
Debits represent something that has been taken away from an account. They usually involve payments made for services or goods that have been purchased. Debits decrease the account balance for the item against which it was made. A debit creates a liability and a credit creates an asset.