Line of Credit
Definition
A line of credit is a loan the business can draw from as needed, up to a limit. Interest is charged only on the amount used. It is a liability.
Example
A business has a $50,000 line of credit. It borrows $10,000 in March and repays $5,000 later in the month. The line of credit balance is $5,000.
Why It Matters
A line of credit is flexible debt. The bookkeeper must track draws, repayments, and interest separately to keep the liability accurate.