In double-entry bookkeeping, a credit is an entry on the right side of an account. Credits increase liabilities, equity and revenue but decrease assets and expenses.
Credits are the other half of the double-entry system (paired with debits). Every transaction involves at least one credit and one debit, and total credits must equal total debits. The rules for credits are: credits increase liability accounts (like accounts payable and loans), credits increase equity accounts (like capital and retained earnings), credits increase revenue accounts, credits decrease asset accounts (like cash and receivables) and credits decrease expense accounts. The term 'credit' in bookkeeping should not be confused with its everyday use. When your bank 'credits' your account, they are increasing a liability (the bank owes you money), which is consistent with the bookkeeping rule that credits increase liabilities. Modern accounting software handles the debit and credit mechanics automatically - you simply record the transaction and the system creates the appropriate entries on both sides. SortBooks ensures both sides of every transaction entry are correctly categorised.
SortBooks helps with the bookkeeping behind credit by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing credit by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
In double-entry bookkeeping, a debit is an entry on the left side of an account. Debits increase assets and expenses but decrease liabilities, equity and revenue.
Double-entry bookkeeping is a system where every transaction is recorded in at least two accounts - a debit and a credit - ensuring the accounting equation always balances.
A journal entry is a record of a financial transaction in the accounting system. It includes the date, accounts affected, amounts and a description of the transaction.
The general ledger is the master record of all financial transactions in a business, organised by account. It forms the basis for preparing financial statements.
A trial balance is a report listing all general ledger accounts and their balances at a specific date. Total debits must equal total credits, confirming the books are mathematically balanced.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.