Credit account definition
/What is a Credit Account?
A credit account is an open account that a buyer has with a supplier or store, under which the buyer can make purchases and pay for them at a later date. This is essentially a no-interest accounts receivable arrangement. Historically, this was a handwritten ledger in which was stated all sales to a customer, offset by all payments made by the customer. The store granting this credit would notify the buyer when payments were due, usually when the buyer next came into the store.
Credit Account vs. Buying on Credit
The credit account has been largely superseded in business by the concept of buying on credit, where a company grants a certain amount of credit to a customer, allowing purchases on credit up to the maximum amount of the credit granted to that customer. Billings are made by invoice, and must be paid by a certain date, or else the amount of credit will be reduced or cancelled.
Credit Account vs. Store Credit Cards
For the consumer, the credit account concept has morphed into the store credit card, which a consumer can use to make purchases up to the credit limit stated for the card. Under this arrangement, the store offloads its credit function to a third-party credit card processing company, which grants credit and collects receivables on its behalf.
Terms Similar to Credit Account
A credit account is also known as a charge account or credit card account.
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FAQs
How is a Customer Credit Account Different from a Vendor Credit Account?
A customer credit account represents amounts owed to the business by customers who purchased goods or services on credit, typically recorded as accounts receivable. In contrast, a vendor credit account reflects amounts the business owes to suppliers for purchases made on credit, recorded as accounts payable. Essentially, one is an asset (money to be received), and the other is a liability (money to be paid).