Debtors and Creditors are two terms that often create confusions for many therefore, in this blog, we will help you understand each and every difference between debtor vs creditor.
Basically, both Debtors and Creditors are accounting terms, used for financial matters. Let’s dig deeper to know more about it.
What Is a Debtor?
A debtor is an individual, small business or anyone who owes money from any party. The borrowed money is repaid over a particular, definite period of time. This money usually contains additional interest payments as a benefit to loan money.
If you are running a small business then you may have debtors or you could be a debtor as well.
What is a Creditor?
Creditor is a term that is used for an entity (organisation, individual, government or bank) who lent money to another party. The party to whom credit has been arranged is mostly a customer and referred as a debtor.
Debtor and Creditor Scenario
Those customers who do not pay an upfront for your services or products are debtors to your business. Similarly, you are debtors to your dealers, in case, if they have provided you with goods which are not yet fully paid.
Relationship between a debtor and creditor is considerable because these two terms affect both assets and liabilities on your balance sheet.
Being a creditor for another business can be an asset, representing financial power to your business, whereas too much debt counts as a liability.
If a company owes money to another company. Then the previous company will be debtor while the other company will be creditor. They are the two parties to a particular transaction and hence there should not be any confusion regarding these two anymore.
We hope that this Article will help you know about the basic difference between debtor vs creditor. In case, if you need any assistance to any accounting aspect, tax, or any particular issues with debtors or creditors feel free to get in touch with Certax London. We are the affordable and approachable source for your tax and accounting solutions.