Final answer:
In accounting, a credit records an increase in liabilities, equity, or revenue accounts. In a T-account, this is shown on the right side, in contrast to assets, which are shown on the left. Assets always equal liabilities plus equity in a firm's balance sheet.
Step-by-step explanation:
A credit is used to record an increase in a company’s liabilities, equity, and sometimes revenue accounts, rather than asset or expense accounts. In the context of a T-account, which separates a firm’s assets on the left from its liabilities and equity on the right, a credit entry on the right side indicates an increase in liabilities or equity. For example, when a bank receives deposits, it records these as liabilities because it owes the deposited funds back to its customers. The bank’s assets include the financial instruments it holds, such as reserves, loans made, and U.S. Government Securities. The net worth of the bank, also known as equity, is calculated by subtracting total liabilities from total assets and is recorded on the liabilities side to ensure the T-account balances. Consequently, in accounting, assets will always equal the sum of liabilities plus equity.