Credit (finance)

Credit (from Latin credit, "(he/she/it) believes") is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services. However, in modern societies, credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account.

Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk – the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole).

Credit

Credit may refer to:

See also

Debits and credits

In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers to record changes in value resulting from business transactions. Generally speaking, the source account for the transaction is credited (that is, an entry is made on the right side of the account's ledger) and the destination account is debited (that is, an entry is made on the left side). Total debits must equal total credits for each transaction; individual transactions may require multiple debit and credit entries to record.

The difference between the total debits and total credits in a single account is the account's balance. If debits exceed credits, the account has a debit balance; if credits exceed debits, the account has a credit balance. For the company as a whole, the totals of debit balances and credit balances must be equal as shown in the trial balance report, otherwise an error has occurred.

Accountants use the trial balance to prepare financial statements (such as the balance sheet and income statement) which communicate information about the company's financial activities in a generally accepted standard format.

Credit (creative arts)

In general, the term credit in the artistic or intellectual sense refers to an acknowledgement of those who contributed to a work, whether through ideas or in a more direct sense.

Credit in the arts

In the creative arts, credits are an acknowledgement of those who participated in the production. They are often shown at the end of movies and on CD jackets. In film, video, television, theater, etc., credits means the list of actors and behind-the-scenes staff who contributed to the production.

Credit in writing

Non-fiction

In non-fiction writing, especially academic works, it is generally considered important to give credit to sources of information and ideas. Failure to do so often gives rise to charges of plagiarism, and "piracy" of intellectual rights such as the right to receive a royalty for having written. In this sense the financial and individual meanings are linked.

Academic papers generally contain a lengthy section of footnotes or citations. Such detailed crediting of sources provides readers with an opportunity to discover more about the cited material. It also provides a check against misquotation, as it's easy for an attributed quote to be checked when the reference is available. All of this is thought to improve integrity of the instructional capital conveyed, which may be quite fragile, and easy to misinterpret or to misapply.