What is the Difference Between Debtors and Creditors?


Difference Between Debtors and Creditors

While purchasing goods on credit a buyer may not make the payment immediately instead both the seller and buyer may enter into a lending & borrowing arrangement. This allows delayed payments for current invoices. Even though payment terms are mutually agreed upon there is still a difference between debtors and creditors.

Typically such agreements involve a short interest-free credit period during which the buyer can make its payment. Debtors and creditors may be defined as follows;

A brief difference between debtors and creditors infographic

Debtors – In a business scenario, a person or a legal body who owes money to another party is called a debtor. For a business, the amount to be received is usually a result of a loan provided, goods sold on credit, etc.

Example – Unreal corp. purchased 1000 kg of cotton for 100/kg from X to use as raw material for their clothes manufacturing business. The total invoice amount of 100,000 was not paid by Unreal corp. In this example, Unreal corp. is a debtor for X.

 

Creditors – In day to day business a person or a legal body to whom money is owed is known as a creditor. For a business, the amount to be paid may arise due to repayment of a loan, goods purchased on credit, etc.

Example – Unreal corp. purchased 1000 kg of cotton for 100/kg from X. The total invoice amount of 100,000 was not received immediately by X. In this example, X is a creditor for Unreal corp.

 

Additional Points on Difference Between Debtors and Creditors (Table Format)

Debtors Creditors
1. Debtors avail credit facility as they borrow. 1. Creditors extend credit as they act as lenders.
2. It is a current asset for the business. 2. It is a current liability for the business.
3. Debtors are a result of credit sales by the business. 3. Creditors are a result of credit purchases by the business.
4. Discount is allowed to debtors. 4. Discount is received from creditors.
5. Total amount to be received (total debtors) is also known as Sales Ledger Control. 5. Total amount to be paid (total creditors) are also known as Purchase Ledger Control.
6. Collectively they form company’s accounts receivables. 6. Collectively they form company’s accounts payables.
7. Also known as Trade Debtors or Trade Receivables. 7. Also known as Trade Creditors or Trade Payables.
8. A provision for doubtful debts is created for debtors. 8. No such provision or reserve is created.

 

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