SCOPE OF CREDIT

SCOPE OF CREDIT

▶Credit is a contractual agreement that the borrower receives what is currently worth it and agrees to pay back to the lender one day in the future.
▶Credits also refer to accounting items that reduce assets or increase liabilities and capital on the company's balance sheet.
▶In addition, in the company's income statement, debit decreases net income, while credit increases net profit.
▶There are various forms of credibility. If a bank provides a car loan, mortgage, signature loan, credit facility to a customer, they are all forms of credit.
▶Essentially, the bank lends funds to the borrower and the borrower must repay it in the future.
▶For example, when a person shops at a local shopping mall with a VISA card, he is considered a kind of credit because he purchases goods with an understanding that payment needs to be made later.
▶But only the loan is not a form of credit. This is a form of credit if the supplier provides products or services to individuals but does not require payment until a later date. For example, a restaurant received one food item from a seller, but if the seller does not request payment after one month, the seller is providing credit to the restaurant.
▶Furthermore, if an enterprise purchases something with credit, the account must record the transaction in several places in its balance sheet.
▶To illustrate, suppose a company purchases goods with credit. After purchase, the company's inventory account will increase by purchase price and add assets to the company. However, the accounts payable amount also increases according to the purchase price, and debts are added to the company.