The word credit comes from the Latin, credere, to believe. The term is used in many different senses but for our purpose we may define it as confidence that a borrower will give back money or money's worth. This confidence or belief may be founded upon a knowledge of the man's character or his economic status, or his liability under the law, or upon a combination of these. We say that a man has credit when he enjoys some one's confidence to such an extent that that person will let him have money or money's worth on account of his belief that it will be returned to him. A person gives credit when he lends money or money's worth in the belief that it will be returned to him.

135. Book Credit

When the grocer, John Doe, sells goods to the gardener, Richard Roe, for which the latter does not pay at once, he debits (Latin, debere, to owe) him with the amount of the purchase. When Richard Roe later brings garden truck to the store he receives credit for it on John Doe's books. At the end of a month or of several months the debit and the credit columns of Richard Roe's account are totaled and if the debits exceed the credits, Richard Roe pays the difference to John Doe, while if the credits exceed the debits, John Doe pays the difference to Richard Roe. In either case, transactions involving many dollars' worth may be settled by the use of book credit with the payment of a trifling amount in money.