Dictionary / Line of Credit
What does Line of Credit mean in accounting?
Quick definition
GeneralCredit line. A maximum credit amount allowed a buyer or borrower. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
Read more below
Examples
Fence lumber paid with a revolving draw
You run a fence company. On June 2, your bank approves a $45,000 revolving line of credit: that cap is the maximum you may borrow, not a loan until you draw. On June 17 you draw $13,400 to pay a lumber supplier for cedar panels, so checking rises $13,400 and a line-of-credit payable, a current liability, rises $13,400. You see the deposit in the QuickBooks Online or Xero bank feed. Leave the unused $31,600 off the books; the bank's unused-availability figure is a memo, not a posted balance.
A one-deal bank authorization is not this
You run a drapery shop. On September 8, a wool supplier will not ship $22,000 of wool until your bank issues a letter of credit, so the bank authorizes that supplier to draw up to $22,000 by October 31 against that one shipment. That paper is not a line of credit, and you do not open a $22,000 line-of-credit payable on September 8. When the bank pays the draft on October 14, debit inventory $22,000 and credit the bank (or a short-term payable to the bank). A line of credit is a revolving maximum you may borrow or buy against; an LC is a one-deal authorization with a stated amount and time.
Why it matters
A line of credit is the maximum a buyer or borrower may draw or buy against, usually revolving: you can take cash, repay it, and draw again up to that cap. You will not journal the unused room most months. The books move when you actually draw and when you repay. Book the unused limit as a loan before you have taken any cash, and the balance sheet shows a liability you do not owe. Mix it with a letter of credit, which is a bank authorization to draw for a stated amount and time on a specific deal, and you will treat unused availability as posted debt, or treat a one-shot import authorization as a revolving loan.
Further reading
Compare this term with reference material from other accounting and finance websites.
Keep learning
Start with the bookkeeping basics, then compare software when you are ready to pick a tool.
Getting startedBookkeeping basics for small-business ownersWhat bookkeeping is, the records you need, double-entry in plain English, and a monthly rhythm that fits a 1–50 person shop.Updated October 4, 2026
RolesWhat does a bookkeeper do?A bookkeeper records bills, invoices, and bank activity so your books stay current. See the weekly work, the month-end close, and what they do not do.Updated August 18, 2026
Monthly closeMonthly bookkeeping: what to close each monthMonth-end is the job: reconcile banks and cards, age bills and invoices, check payroll, then read the reports. A close checklist for small-business owners.Updated August 18, 2026
Receipt CaptureThe 7 Best Receipt Capture Tools for Small BusinessThe 7 best receipt capture tools for small business, ranked: OCR accuracy, QuickBooks and Xero sync, real pricing, and honest tradeoffs for each pick.Updated August 9, 2026Frequently asked questions
What is Line of Credit in bookkeeping?
Credit line. A maximum credit amount allowed a buyer or borrower.
When should I use Line of Credit?
Use Line of Credit when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Line of Credit?
Line of Credit is used for line of credit entries, while Lapse covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.